The cloud that is the economic slowdown continues to rain on business-to-business catalogers. And unfortunately, no silver lining is in sight.
During the second quarter, 60% of the publicly traded business-to-business and computer catalogers tracked by investment bank Ulin & Holland for Catalog Age failed to beat last year’s sales performance. And 60% of the companies suffered from eroding bottom lines. Compare that to a year ago, when only 22% of the catalogers tracked failed to increase their second-quarter sales, and 39% saw their net income decline or their net loss grow.
CATALOG AGE’S SPOTLIGHT ON SECOND-QUARTER FINANCIALS
MSC’s Net Income Down 85%
Melville, NY-based industrial supplier MSC Industrial Direct Co. reported a 4% decline in net sales for the quarter ended May 26, to $204.8 million from $212.8 million a year prior. Income from operations declined 25%, from $28.6 million to $21.4 million. And net income plunged 85%, from $16.4 million to $2.5 million.
The Skinny: The reason for MSC’s declining fortunes is simple: As the economy slows, so do sales of durables such as coolant systems, saw blades, and pressure washers. Sure, industrial and maintenance, repair, and operations (MRO) customers still need supplies, but now they need a lot fewer of them.
NEBS’s Sales Growth Not Enough to Keep Income from Tumbling
Although multititle business supplies mailer New England Business Service (NEBS) posted a 12% rise in annual revenue, to a record $586.1 million for the year ended June 30, net income fell 36%, to $18.7 million from $29.4 million last year. Excluding one-time items from both fiscal 2001 and 2000, however, the decline was 10%.
Sales for the quarter increased 15%, to $145.6 million from $126.7 million a year prior. Much of the credit for the revenue growth goes to the Premium Wear catalog, which Groton, MA-based NEBS bought in July 2000. An extra week in the fiscal quarter this year compared with last accounted for some of the increase as well. But net income for the quarter was cut in half, from $7.2 million last year to $3.6 million. And NEBS warned that sales and earnings for the quarter ending Sept. 30 will likely fall short of those for the comparable quarter of last year.
The Skinny: For fiscal 2002, NEBS projects sales growth of just 2% and earnings-per-share growth — excluding one-time items — of 6%-10%.
Business-Model Changes Nibble Away at Zones’ Revenue
For the three months ended June 30, Renton, WA-based Zones earned $92,000, compared with $300,000 in net income a year earlier. Total net revenue decreased nearly 16%, to $145.2 million from $171.8 million for the second quarter of 2000. The company formerly known as Multiple Zones attributes its drop in sales largely to — surprise — the sagging economy.
The Skinny: Another reason Zones gave for its revenue decline was a shift in its business model. The computer reseller stopped all marketing efforts to its inbound consumer buyers at the start of the second quarter, discontinuing the circulation of PC Zone catalog to consumers as well as its consumer-targeted PC Zone Website. Instead Zones is focusing its efforts on outbound sales to small and midsize businesses, enterprise accounts, and the education and government markets. The outbound sales division’s revenue for the quarter was $120.4 million, or 83% of total net sales. A year ago it had accounted for 72% of total sales.
PC Connection’s Net Income Drops 83%
Another computer reseller, PC Connection, also blamed the economy — specifically weak demand and pricing pressure in the technology industry — for its less-than-stellar performance. Second-quarter net income was $1.4 million, down 83% from $8.6 million last year. And net sales at the Merrimack, NH-based cataloger tumbled 19%, to $297.3 million for the three months ended June 30 from $366.1 million a year prior. Sales processed online increased a scant 2%, to $26.1 million from $25.5 million.
The Skinny: PC Connection is the poster child of the computer industry’s troubles. Just last year, its second-quarter revenue had climbed 55%, and its earnings had skyrocketed 84%.
At Least Black Box Has Good News
Pittsburgh-based Black Box Corp. was one of just three b-to-b and computer catalogers to post second-quarter gains in both sales and income. (Medical, dental, and veterinary supplier Henry Schein and computer reseller CDW Computer Centers were the others.) Networking systems and services provider Black Box grew second-quarter revenue 21%, to $207.1 million from $171.1 million last year. Net income for the quarter, including a one-time charge, was $15.1 million, up 7% from $14.1 million.
The Skinny: Other than NEBS, Black Box was the only b-to-b/computer cataloger to enjoy a double-digit sales rise this quarter. Black Box’s secret: its strategy of acquiring smaller telecommunications companies, which are accretive to sales and earnings.
| REVENUE $000 | NET INCOME $000 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 12 Months Prior |
Current Quarter |
Improvement (Decline) |
12 Months Prior |
Current Quarter |
Improvement (Decline) |
Info as of Quarter Ended |
P/E (as of 8/16/01) |
||
| BUSINESS-TO-BUSINESS | Henry Schein | 568,631 | 606,285 | 7% | 16,381 | 20,910 | 28% | 6/30/01 | 23.45 |
| Moore Medical Corp. | 30,259 | 32,476 | 7% | 79 | (760) | NM | 6/30/01 | N/A | |
| MSC Industrial | 212,845 | 204,834 | (4%) | 16,366 | 2,482 | (85%) | 5/26/01 | 30.44 | |
| New England Business Service | 126,666 | 145,641 | 15% | 7,205 | 3,570 | (50%) | 6/30/01 | 13.27 | |
| Sport Supply Group | 30,757 | 27,955 | (9%) | (329) | (333) | (1%) | 6/29/01 | N/A | |
| Systemax | 405,972 | 363,506 | (10%) | (14,531) | (2,583) | 82% | 6/30/01 | N/A | |
| Tessco Technologies | 62,522 | 59,894 | (4%) | 1,594 | 283 | (82%) | 7/1/01 | 16.43 | |
| Transmation | 18,800 | 17,140 | (9%) | 30 | (439) | NM | 6/30/01 | 438.00 | |
| COMPUTER PRODUCTS | Black Box Corp. | 171,133 | 207,116 | 21% | 14,128 | 15,083 | 7% | 6/30/01 | 15.22 |
| CDW Computer Centers | 943,342 | 995,045 | 5% | 40,049 | 43,030 | 7% | 6/30/01 | 21.97 | |
| Insight Enterprises | 488,174 | 504,826 | 3% | 13,737 | 11,068 | (19%) | 6/30/01 | 14.31 | |
| PC Connection | 366,090 | 297,338 | (19%) | 8,601 | 1,436 | (83%) | 6/30/01 | 14.53 | |
| PC Mall | 195,892 | 171,980 | (12%) | (3,370) | 585 | NM | 6/30/01 | 9.01 | |
| Programmer’s Paradise | 51,949 | 24,127 | (54%) | (1,044) | (562) | 46% | 6/30/01 | N/A | |
| Zones | 171,839 | 145,163 | (16%) | 300 | 92 | (69%) | 6/30/01 | 115.38 | |
| MARKET INDICES |
Dow Jones Industrial Average | 25.95 | |||||||
| Standard & Poor’s 500 Index | 26.19 | ||||||||
| Notes: Price-to-earnings ratios are from various sources NM = not meaningful NA = not available Source: Ulin & Holland |
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