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Despite posting better-than-expected fourth-quarter 2010 results, OfficeMax Inc. (NYSE:OMX) projected soft sales for the first quarter and fiscal 2011, as it remains cautious about the macroeconomic environment and sluggish job market.

Quarterly Discussion

The quarterly earnings of 16 cents a share beat the Zacks Consensus Estimate of 10 cents, and portrayed a strong turnaround from a loss of 3 cents delivered in the prior-year quarter, on the heels of effective cost and inventory management that offset the fall in top line.

Total sales fell 2.4% to $1,766.2 million from the same-quarter last year and also fell short of the Zacks Consensus Revenue Estimate of $1,790 million. The office supplies retailer hinted that it now expects first-quarter 2011 sales to be lower versus the comparable period, and fiscal 2011 sales to remain flat or marginally higher than 2010. Both include the positive impact of foreign currency translation.

The recovery in the economy still lacks luster. As a result, consumers and small businesses still remain wary on their spending. The demand for office products is closely tied to the health of the economy.

OfficeMax notified that gross profit climbed 0.8% to $446 million and gross margin expanded 90 basis points to 25.3%. The higher margin was mainly the result of lower cost of goods sold (down 3.5%). Adjusted operating income for the quarter soared to $30.8 million compared with an operating loss of $2 million posted in the year-ago quarter. Adjusted operating margin for the quarter was 1.7%.

Management now expects adjusted operating margin for first-quarter 2011 to be drastically lower than the year-ago quarter, and for fiscal 2011 to be in line with or marginally lower than the 130-basis point margin improvement achieved in 2010.

Segment Discussion

OfficeMax Contract segment sales dropped 3.6% to $913.4 million in the quarter due to declines of 5.1% and 0.4% in Contract operations sales in the U.S. and international markets, respectively. Segment sales tumbled 5.2% in constant currency. Segment gross profit margin expanded 100 basis points to 22.8%.

OfficeMax Retail segment tumbled 1.1% to $852.8 million, reflecting a 0.7% decline in comparable-store sales. The fall in the U.S. comps was to a large extent offset by healthy sales in Mexico. Segment gross profit margin increased 50 basis points to 27.8%.

At the end of fiscal 2010, OfficeMax operated 997 retail stores, comprising 918 retail stores in the U.S. and 79 retail stores in Mexico. During the quarter under review, the company opened one retail store in Mexico and closed two stores in the U.S. During fiscal 2010, the company opened two stores in Mexico and closed 15 stores in the U.S.

For fiscal 2011, OfficeMax now plans to open five stores in Mexico and close 15 locations in the U.S.

Other Financial Details

OfficeMax ended the quarter with cash and cash equivalents of $462.3 million, total long-term debt of $270.4 million, and shareholders’ equity of $600.8 million. Capital expenditures for the quarter were $43.4 million. Management now expects capital expenditures of approximately $100 million in fiscal 2011.

Currently, OfficeMax, which competes with Office Depot Inc. (NYSE:ODP) and Staples Inc. (NASDAQ:SPLS), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

Source: OfficeMax Tops Estimates, But Exercises Caution