Third quarter sales at OfficeMax declined 1.7% to $1.74 billion and same store sales dropped 2.1% due to weak demand for office products.
Despite anemic sales, OfficeMax reported a huge increase in profits as it recorded a one time non-cash gain of $671 million related to the extinguishment of something called "non-recourse debt" that was guaranteed by Lehman Brothers Holdings, Inc. The result was that $416.4 million of reported net income of $433 million and $4.73 of earnings per share of $4.92 were due to the non-recourse debt extinguishment. The third quarter also included $11.4 million of expenses to impair fixed assets associated with certain stores and to record a change in the estimated lease obligation of a previously closed store in the U.S. which reduced net income by $7 million or 8 cents a share.
If all those factors are stripped away, OfficeMax produced adjusted operating income of $44.9 million compared to $41.3 million the prior year. Adjusted net income totaled $23.6 million, or 27 cents a share, compared to $21.5 million, or 25 cents a share the prior year.
"Our team's focus on strengthening the core business resulted in stronger operating margins for the quarter, driven primarily by our U.S. and international contract businesses," said OfficeMax president and CEO Ravi Saligram. "While we continued to drive sales growth in our U.S. contract business including digital initiatives, retail sales were challenged by weaker demand for technology products, especially personal computers."
Retail segment sales decreased 3.1% to $864 million and operating profits declined to $27.7 million from $28.5 million. Sales in the contract division were essentially flat at $881 million, but a slight improvement in margins allowed operating profits to increased to $26.5 million from $23.3 million.
OfficeMax ended the quarter with a total of 960 stores consisting of 872 units in the U.S. and 88 stores in Mexico.