OfficeMax Inc. (OMX), one of the leading office supplies retailers, now expects third-quarter 2010 adjusted operating income margin to be just above the prior-year quarter principally due to a favorable settlement of sales tax issues. 
 
However, excluding these settlements, adjusted operating income margin will remain in line with the company’s previous guidance of a lower adjusted operating margin for the third quarter compared with the year-ago quarter. 
 
OfficeMax reaffirmed that it still expects third quarter sales to be slightly lower than the year-ago quarter, including the positive impact of foreign currency translation. The current Zacks Consensus Revenue Estimate for the quarter is $1824 million, which is below $1,831.9 million delivered by the company in the year-earlier quarter.
 
The company also hinted at a year-over-year decline in domestic retail comparable-store sales to date in the third quarter, which however, remained favorable compared to second-quarter 2010, which had seen a fall of 2.1%.
 
The company notified that its Back-to-School season performance dovetails with its expectations even in a highly promotional and competitive environment.
 
OfficeMax, which competes with Staples Inc. (SPLS) and Office Depot Inc. (ODP), remains cautious about the macroeconomic conditions and a sluggish job market that may weigh upon the results. The economy recovery still lacks luster. As a result, consumers and small businesses still remain watchful on their spending. We observe that the demand for office products is closely tied to the health of the economy.
 
In a separate story, OfficeMax recently entered into a five-year contract with Educational & Institutional Cooperative Purchasing (“E&I”), for office supplies. Under the contract, the members of E&I can avail price reductions, and can get a greater choice of office supplies, print services, technology solutions, furniture, asset disposition and a closed-loop paper system. E&I Cooperative Purchasing is the leading higher education purchasing conglomerate in North America that serves colleges and universities.
 
Currently, OfficeMax holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.
 
 
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