X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

ITASCA, IL-The sale of its paper and forest products division may have helped Office Max emerge as a formidable competitor in the office products sector but its sales and profitability still lags behind both Staples and Office Depot, an analysis of the company by Lehman Brothers Equity Research indicates.

The firm’s retail and contract divisions accounted for $8.8 billion in revenues in 2004 but the office products retailer still came out third in revenues for the year, well behind its two main competitors. Although Office Max’s operating margins for both divisions was well below operating margins for Staples and Office Depot, the company still has room for improvement, Lehman Brothers’ analysts found.

Higher paper prices affected margins in the company’s contract division during 2004 and while the company has kept paper prices low following four price increases, the division’s profitability has suffered. While paper margins are improving, the analysts said they are still below 2003 prices.

The firm’s retail segment fared somewhat better with operating margins that were 0.5% of sales in 2004, compared to 2.2% a year earlier. While retail operating margins improved by 110 basis points due to a more favorable mix of products and better purchasing, the operating expense ratio for the retail segment increased by 275 basis points. Although analysts found Office Max could still achieve greater profitability in its contract division, the firm’s retail operation still faces a number of challenges. Staples’ recent expansion into Chicago, a core Office Max market, along with increased pressure from Office Depot and Office Max’s decision to move away from lower-margin technology products, could keep the company’s retail segment from showing a marked improvement.

Office Max’s acquisition by Boise Cascade in December 2003, netted the company approximately $100 million in savings in 2004, or about $20 million above initial expectations, but those numbers were partially offset by $30 million in one-time merger/integration expenses during the year, the analysts wrote. The firm, which operates almost 1,000 superstores, has also been helped by the closure 12 of its 55 warehouses since 2003, which has reduced contract division costs. The firm plans an additional 13 warehouse closings in 2005, leaving the company with 30 delivery warehouses by the end of the year. Nine distribution centers, two customer service centers and two underperforming stores were also closed and 11 more store closings are planned by the end of 2005 while 30 stores are expected to open.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.