As expected, comparable-store sales for continuing business segments decreased one percent for the full year and decreased six percent for the fourth quarter. As reported in January, OfficeMax said sales for its fourth quarter, which included the important holiday selling season, were impacted, similarly as virtually all other retailers, by a precipitous slowdown in consumer spending and the negative effects of major winter storms. In addition, the Company said its sales in over 30 markets, affecting to various degrees approximately 200 stores, were temporarily hurt by the inventory liquidation of 65 store closings by one of its competitors.
OfficeMax said operating results on a consolidated basis for the full year were a loss of $49.7 million, or ($0.46) per share, prior to the charges related to the Company’s earlier announced closing of 50 stores and a litigation settlement. Including the charges, net loss for the year was $133.2 million, or ($1.20) per share. This compares to fiscal 1999 earnings of $59.6 million, or $0.52 per share, excluding a $77.4 million pretax inventory markdown charge for item rationalization.
Consolidated operating results for the fourth quarter of fiscal 2000 were a loss of $13.2 million, or ($0.12) per share. This excludes a $66.8 million after-tax charge, or $109.6 million pre-tax, for store closings, lease dispositions and fixed asset impairments, along with a $4.9 million after-tax charge, or $8.2 million pre-tax, for inventory liquidations in the stores that are closing. Including these charges, fourth quarter operating results were a loss of $85.0 million, or ($0.76) per share, compared to net income of $23.0 million, or $0.20 per share, for the fourth quarter last year. Fourth quarter 1999 earnings were $19.3 million, or $0.17 per share, excluding a $3.8 million after-tax benefit, or $5.9 million pre-tax, recognized from the adjustment of a markdown charge recorded in third quarter 1999. OfficeMax said that the fourth quarter per share results were $0.01 better than the current Thompson First Call consensus estimate.
Company Ends Fiscal Year in Strong Financial Condition
Despite a difficult economic environment, OfficeMax said it ended fiscal 2000 in strong financial condition. The Company’s borrowings, net of cash, were $94.4 million, compared with $283.9 million six months earlier. OfficeMax has $750 million in total liquidity through a bank facility and letters of credit. At the Company’s fiscal year-end, assets were nearly $2.3 billion, with liabilities of $1.3 billion and shareholders’ equity of $1.0 billion.
Michael Feuer, OfficeMax’s chairman and chief executive officer, said, Fiscal 2000 was the most challenging year in OfficeMax’s history. The Company used the year as a period in which to complete many critical strategic initiatives, even though it meant a deliberate sacrifice of immediate profitability in order to lay the foundation for long-term growth. We are pleased that a majority of these costly infrastructure initiatives are either completed or will be wrapped up in the first half of this year and look forward to resumed accelerated growth that could begin as early as the third quarter, depending on general economic conditions.
OfficeMax reported an inventory reduction of nearly 22 percent per store on a year-over-year basis. Year-end total inventory balance was $1.159 billion compared to $1.274 billion at the end of fiscal 1999. This reduction was achieved despite adding inventory for new superstores opened last year and a mega PowerMax distribution facility in Alabama.
Mr. Feuer added that because of its new supply-chain management network OfficeMax expects to lower inventory levels across the entire chain by approximately $400 million, with about a $200 million reduction this fiscal year, followed by another $200 million in fiscal 2002.
Core Business Segment Full-Year and Fourth Quarter Results
The Company said fiscal 2000 sales for the Core Business Segment, which primarily consists of office supplies, furniture, business machines, peripherals and CopyMax printing services, increased to $4.939 billion, up nine percent from $4.523 billion in the prior year. Core Business Segment operating results for fiscal 2000 were a loss of $98.7 million, or ($0.89) per share, down from earnings of $39.3 million, or $0.34 per share, for the same period in the previous year.
OfficeMax said fiscal 2000 full-year sales for its public Internet site, OfficeMax.com, increased 192 percent to $118.1 million. This compares to fiscal 1999 sales of $40.4 million. This segment reported better than expected operating results with a loss of $24.9 million, or ($0.23) per share, compared to a loss of $3.9 million, or ($0.03) per share for fiscal 1999. The OfficeMax.com segment results reflect the costs of accelerated and aggressive marketing throughout the year necessary to establish the OfficeMax.com brand with its target small business customer.
Store Closing Program Continues as Planned, Fiscal Year 2001 Free Cash
Flow Expected to Exceed $150 Million
At the end of fiscal 2000, OfficeMax announced plans to close 50 under-performing superstores. The Company said the stores involved are currently proceeding through the liquidation process, which is progressing as expected and anticipates a majority of these stores will close before the end of April. OfficeMax, as previously announced, has also, primarily because of uncertain economic conditions, reduced its planned fiscal 2001 store openings to less than 25 domestic superstores, down from 54 store openings in fiscal 2000. The Company said that this year it will focus on opening new stores in markets where it already has a major presence which will enable it to better leverage advertising, distribution and supervision costs. OfficeMax said the lower fiscal 2001 store openings, combined with reductions in capital expenditures and programs focused on cost-and-expense controls are expected to increase free cash flow to over $150 million for fiscal 2001, which would be an improvement of nearly $300 million over fiscal 2000 results.
Mr. Feuer added that, as soon as practicable, all new OfficeMax stores will be reduced in size by approximately 15 percent. The Company’s new format will be 20,000 square feet, down from its former 23,500 square-foot format. This reduction is an added benefit of OfficeMax’s new supply-chain management network, which gives the Company the ability to reduce the average amount of inventory in its stores as it moves closer to a just-in-time distribution system.
OfficeMax said it opened 54 new superstores during fiscal 2000 and at the end of this year still expects to have the greatest office products superstore domestic geographic breadth with nearly 1,000 locations in 49 states, Puerto Rico and the U.S. Virgin Islands.
