OMX....
Sergio and Ken,
Of the three warehouse stores, Office Max, Office Depot and Staples, Office Max is the weakest when it comes to competition for commercial stationers such as Corporate Express, Boise, BT etc. Both from a service and a price standpoint.When we approach new accounts, very rarely do we run into Office Max customers. When we do they are usually easy pickings. They appear to have slightly higher prices.
The problem with the higher prices is that they aren't as competitive as OD or Staples for the home or small business market. Office Max has done a good job of going into smaller areas thus possibly avoiding some competition from the other two. When we approach new accounts, very rarely de we run into Office Max accounts and when we do they are usually easy pickings.
I noticed same store sells less computers were up 6% from last year but counting computers they were down. The computer and electronic areas have always been very competitive and a place that we couldn't really compete do to the volume buy discounts that they received along with the low margins that they were willing to sell the Merchandise for. I would assume that their costs are going down just as much as the sales price. This shouldn't greatly effect them but it will still reduce their margins a little bit (10% of $1000.00 is more than 10%
of $800.00)
The second quarter is definitely one of the slower quarters in the office industry. The third and fourth quarters should be very busy
for them. Although net income was up, EPS for the quarter remained unchanged from the previous year. In comparing same store sales with Staples and Office Depot, Office Max was (6%), OD + 7%, and Staples + 13%. The recent acquistion of Quill by Staples and the pending merger of Viking with Office Depot should cut into Offcie Max's business also.
Even though they have announced a share buy back program, I don't believe they have repurchased any shares yet. I am probably missing something but a quick look at the 10k from last year showed that they had $66 million in cash or equivilents and $44.9 million after the first quarter. At which time they showed an increase of shares. They also show an increase of shares for the second quarter that just ended. If this is the case, where are they going to get the money to buy the shares back????
Locally both Office Depot and Staples have started raising their store
prices. They have done an excellent job of creating the perception that they are the lowest price. When it has come to the small or home business, loyalty or value of service over time has become less prevelent. It is now almost always dictated by price. It has become the perceived low price. I think this is reflected in some of the growth that both of these companies exhibited last quarter from the previous years quarter. It is also becoming easier for us to get those smaller accounts back because of the price increases.
Don't know how many cities Office Max are in that Office Depot and or Staples are not. For them to be successful, they might have to be where they aren't.
Cary
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