Maybe we'll just call it OfficeMini.
OfficeMax (NYSE:OMX), the No. 3 office supply retailer based on market capitalization, took an enormous $935 million charge to earnings for impairment of goodwill, causing it to report a huge loss of $11.79 per share on Wednesday. While management dismissed the impairment as an accounting exercise -- which it is, to a certain extent, but it still remains more art than science -- consider the implications. Three-quarters of the value of the OfficeMax brand were cleaned from the books in one big bath.
In 2003, what was then Boise Cascade acquired OfficeMax in a $1.15 billion merger that offered, at least in theory, a more vertically integrated opportunity to push Boise's paper products through the supply chain.
Although management has reset its valuations to reflect current market values, it doesn't disclose (nor is it required to) what it believes that fair value is. But with OfficeMax swiping such a large piece off the books all at once, it has set the bar pretty low.
Undoubtedly, retailers of office supplies, staplers, push pins, and rubber bands are feeling the economic pinch just as much as anyone. Office Depot (NYSE:ODP) also reported a loss Wednesday, and though it has said results for July seem to be tacking north a bit, OfficeMax management counters that conditions are just horrible and no one can accurately say where the bottom is. It's expecting things to worsen before they improve, and new store openings and store remodels have been dramatically scaled back.
Which calls into question whether Motley Fool Stock Advisor recommendation Staples (NASDAQ:SPLS) will fare any better when it eventually reports. Two months ago, the leading office supplier pointed to "stabilizing" 6% losses in comps for the first quarter in its North American retail division as proof it was "bumping along the bottom." It's possible, but I likened it instead to perhaps holding your breath before another, deeper plunge. It could be that the declines that Office Depot and OfficeMax reported in same-store sales means customers fled to Staples, but while that may have happened in part, I'm doubtful it was a mass migration.
Staples is also going to be wrestling with the integration of Corporate Express, the business delivery service it recently acquired. While that should help it build out one of the growing parts of its business, large mergers of the sort seldom seem to go without a hitch. Just ask Boise Cascade.
Now without the impairment charge, OfficeMax would have earned $19.4 million based on operations, or $0.24 per share, on revenue that fell 7% to $1.98 billion. Where earnings beat analyst expectations, though, revenue fell short. That sounds good, but the company achieved those results through about $35 million in cuts in operating and selling, general, and administrative expenses. Whether it can continue to keep those costs low is highly debatable, and investors may wind up seeing their OfficeMax shares sporting a mini price tag well into the future.
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