OfficeMax shares gain as store closings boost profit margins

OfficeMax Inc., the third-largest U.S. office-supply chain, jumped the most in almost five months in New York trading after profit surpassed analysts' estimates on cost cutting and increased sales from private-label brands.

Net income rose to $24.8 million, or 29 cents a share, in the quarter ended March 27 from $13.1 million, or 17 cents, a year earlier, the Naperville-based company said today in a statement. Profit excluding one-time costs from store closures was 39 cents a share. Analysts projected 21 cents, the average of 13 estimates compiled by Bloomberg.

OfficeMax has been shuttering stores and cutting costs the past four years to make the company more profitable as it faces competition from discount chains such as Wal-Mart Stores Inc. and Target Corp. The company closed seven locations in the quarter and may close as many as eight more this year.

"Since 2005, we've been in a turnaround mode and we've made a lot of progress on resizing our operations," Chief Operating Officer Sam Martin said in a telephone interview. "We are able to leverage a lot of the costs we've taken out."

OfficeMax added $1.97, or 12 percent, to $18.17 at 10:46 a.m. in New York Stock Exchange composite trading. The stock advanced as much as 13 percent earlier, for the largest intraday gain since Dec. 4. The shares had advanced 28 percent this year through yesterday.

Gross margin, the fraction of sales left after subtracting the cost of goods sold, widened to 26.4 percent from 24.4 percent a year earlier.

"OfficeMax reported much stronger than expected first- quarter results, importantly led by gross margin, pointing to a stronger business model than we projected for the future," Gary Balter, an analyst for Credit Suisse in New York, wrote in a note to clients. He rates the shares "outperform."