Why Office Max Shares Soared

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 (NYS: OMX) jumped as much as 18% today after a better-than-expected earnings report.

So what: Like its peer Office Depot (NYS: 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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The article Why Office Max Shares Soared originally appeared on Fool.com.

Jeremy Bowman and The Motley Fool have no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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