November 6, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of office-products supplier Office Max (NYSE: OMX ) jumped as much as 18% today after a better-than-expected earnings report.
So what: Like its peer Office Depot (NYSE: ODP ) , whose shares were also flying today, Office Max was able to beat estimates by cutting costs. Revenue, nonetheless, slipped 1.7% from a year ago, but adjusted EPS increased slightly to $0.27, topping estimates of $0.25. Same-store sales dropped by 2.1%. Shares of the retailer have come roaring back in the past few months, doubling since August, as some see it as a value play.
Now what: The market reaction to both of these office retailers today seems overblown, as they are still facing economic headwinds regardless of their quarterly reports. Some industry observers see a possible merger between the two as Starboard Value, an activist investor at Office Depot, seems to be itching for. A merger could help control costs, but the major problem here seems to be declining sales. The retail office-supply chain is at a competitive disadvantage against online businesses, and demand is falling for much of its inventory. It's hard to see how even a merger will help the two businesses escape that reality. I'd tread carefully.
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