Occupying the No. 3 position in a troubled industry usually doesn’t bode well for a company (ask any 1980s Chrysler executive). And that’s the position of OfficeMax (OMX). It trails the biggest player in the big box office supply retail sector, Staples (SPLS) and No. 2 Office Depot (ODP). The industry itself faces a myriad of woes. The companies built too many stores during good times and the trio’s cut-throat pricing methods leave little room for profits.
OMX saw profit drop by more than half in the first quarter to $11.4 million from $24.8 million a year earlier. That fell well short of analysts’ expectations. Sales dipped 2.8 percent to $1.86 billion.
Revenue for OfficeMax's contract unit, which supplies business customers, slid 3.9 percent, and same-store sales dipped 1.2 percent. The company expects more bad news to come, with sales little changed in the second quarter. It has slated 15 U.S. stores for closing this year.
At least OfficeMax isn’t in denial. “We are disappointed with our start to the year,” CEO Ravi Saligram said in a statement accompanying the earnings report. “In recognition of current trends and upon a deeper evaluation of our existing capabilities, we have put in place strong actions, including significant cost mitigation programs.”
Large companies have been spending less on office supplies since the recession began in 2008, Saligram said in a conference call with analysts. So far, OfficeMax hasn’t been able to make up for that lost business with small and medium-size companies.
Analysts don’t see a bright future for OfficeMax — or its main competitors for that matter.
“We expect macroeconomic pressures to adversely affect the retail office supply industry well into 2011, with government, businesses, and consumers slashing budgets for office supplies, technology, and furniture,” writes Standard & Poor’s analyst Michael Souers.
“Intensifying competition from a multitude of sources, including mass merchants and online players, will depress gross margins well into the future.”
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