This summary is based on the first quarter fiscal 2008 earnings call conducted by OfficeMax Incorporated (OMX: chart) on April 30, 2008.

Management:

Senior Vice President, Treasurer, Investor Relations: John Jennings
Chairman, Chief Executive Officer: Sam Duncan
Chief Operating Officer: Sam Martin
Chief Financial Officer: Don Civgin

Key Investors Issues

- EPS were 81 cents a share compared to 76 cents a share last year.
- Profit rose to $63.3 million from $58.5 million a year earlier.
- Sales declined to $2.3 billion from $2.44 billion a year ago.

First Quarter Highlights

Total sales declined 5.5% primarily reflecting the weaker US economy, deliberate focus on profitable sales and the negative impact of the Easter holiday shifting to the first quarter of 2008 from the second quarter last year.

- Improved margins in contract business offset by the deleveraging of costs in retail segment resulted in operating income margin, decreasing to 3.4% from operating income margin of 4.5% in the first quarter last year.
- Bottom line net income increased to $63.3 million or 81 cents per share.

- There are two significant drivers, the US economy and turnaround plan initiatives. The company is pursuing actions near term to address the impact of current macroeconomic trends which are expected to continue throughout 2008. At the same time, the company is continuing to implement specific turnaround initiatives which are believed will position the company for long term improvement.
- In US contract, initiative to pursue more profitable new and renewing large accounts began even before the company experienced the weaker US economy in the second half of 2007. A primary goal for US contract business is to not chase unprofitable large accounts and to provide a foundation and an infrastructure to support better account predictability and performance.

- Progress has been made as the company focuses on better customer account negotiations, leveraging more efficient hunter and farmer sales teams and using better analytics to evaluate contracts. The company has more flexibility in supply chain to adjust delivery model and it has improved product offering to match customer requirements.
- Ultimately the company believes it is creating win-win solutions with better service and lower costs for customers while delivering improved profitability for OfficeMax. Progress with these initiatives is reflected in a 30 basis point improvement in contract segment operating income margins, despite a 5.5% sales decline versus last year.

- For retail business, OfficeMax as with other retailers is being impacted by weaker consumer and small business customers spending environment. However, the company remains committed to addressing those aspects of retail business that are manageable in a challenging economy.
- The company is implementing key retail initiatives which include rationalizing promotional efforts, pursuing inventory efficiencies and refined real estate strategy. Progress has been made and the company is seeing some benefits from the efforts. More targeted and localized promotional activity contributed to improved point of sale gross margin rates in quarter one compared to the first quarter last year.
- Efficient inventory purchasing, planning and fulfillment, however, resulted in 15% lower inventory per store versus last year, with the lowest levels of clearance inventory in four years. On real estate, retail results were impacted by deleveraging costs for new and existing stores. New stores incur higher costs and expenses as a percent of sales on a per store basis until they enter profitability, typically during the second year open.

- Retail operating income was reduced by about $10 million from the 77 stores opened during the past year due to occupancy and operating costs on lower sales. While real estate investments have a negative impact in the near term, the company believes these investments are prudent for long term improvement.
- Real estate strategy includes a balance of new store openings along with existing store remodels.
- The company opened six new domestic stores and six new stores in Mexico to end the quarter at 988 total stores. It completed 16 store remodels in Phoenix, Tucson and Denver.

In contract segment, while impacted by weaker US business spending trends in the first quarter of 2008, the company remains steadfast in more disciplined new large account generation and retention practices and experience and improvement in gross margin rates.

The result was contract operating income margin increased to 5% which includes the 20 basis points impact from unusual items compared to operating income margin of 4.7% last year. Specifically for US contracts, which represented about 70% of total contract sales, sales declined 12.4% from the same period last year consistent with the trends communicated last month on investment day.

The sales performance for US contract primarily reflects four factors.

- First was disciplined focus on adding and retaining higher margin new large accounts. The company added fewer accounts in the first quarter of this year compared to last year. The company was impacted by decision not to retain one significant large US account which was terminated in mid-2007 because it was unprofitable.
- Second, sales decreased from existing customers. Sales from accounts in place in the year ago period decreased by approximately 7% versus the first quarter last year, reflecting the softer business spending in the US.
- Third, lower small bucket customer sales which include sales from public website and catalogue business, reflected the weaker US economy and focus on profitability and related reduction in marketing investments.
- Fourth, the Easter holiday weekend falling in the first quarter of 2008 rather than in the second quarter as it did last year, had a negative impact. The Easter shift resulted in about 1% lower US contract sales in this year’s first quarter. The company continued pursuing key sales priority of targeting sales from higher margin middle market customers.

Middle market sales remained a relatively small share of total US sales, but the company believes expanded field sales representative team is dedicated to the middle market since mid-2007 and improvements planned for tele-sales productivity will lead to middle market account growth.

- The company is making progress on effort to grow ImPress Print & Document Services sales within US contract account base. The company implemented the restructuring of ImPress organization for both retail, where it recorded ImPress sales and US contract. This included aligning ImPress field sales teams with US contract field sales.
- The company is targeting incremental ImPress sales from r contract accounts, providing value added services to customers. The contract gross margin increased to 22.7% from 22.1% last year. The improvement is attributed to improved negotiated account pricing from existing and new US customers. The company improved large new customer account profitability from centralized pricing and controls initiatives implemented during last year.

- While the number of new accounts decreased in the first quarter compared to last year, gross margin from these new accounts increased. Contract bills gross margin improvement was partially offset by a lower of vendor income in the first quarter this year versus last year due to lower inventory purchases to manage lower sales and more efficient inventory management.
- US contract gross margin was impacted by higher fuel rates and deleveraging fixed freight and occupancy costs as a percentage of sales. Fuel costs were up approximately 50% per gallon of diesel versus last year.
- The company was able to mostly offset these increased costs with efficiencies created through most flexible delivery model, enabled with the US contract reorganization rollout last year. Refined delivery model targets cost of service improvements, including optimizing delivery routes and allowed to cut total private fleet vehicles by 6% in quarter one compared to quarter one last year.