Computing 2Q profits

Oct 01, 2006 9:30 PM  By

It was another profitable quarter for the business-to-business and computer marketers tracked for Multichannel Merchant by Wellesley, MA-based investment bank Tully & Holland. In fact, of the 12 publicly traded merchants tracked, all but three showed year-over-year sales increases for the second quarter. What’s more, only two — Shoreview, MN-based business forms and checks supplier Deluxe Corp. and Rochester, NY-based calibration equipment and services provider Transcat — saw any bottom-line erosion.

Wayside Technology Group (formerly Programmer’s Paradise) topped the list in terms of revenue growth, registering a 38% increase in second-quarter sales, to $41.4 million. The Shrewsbury, NJ-based distributor of software for computer professionals also logged an impressive 322% jump in net income, to $781,000. Among the noncomputer merchants, Melville, NY-based maintenance, repair, and operations supplier MSC Industrial Direct Co. saw the strongest top-line growth, with sales up 14%, to $329.8 million, for the quarter.

“The current quarter was a strong one,” notes Stuart Rose, managing director for Tully & Holland. “The computer products’ group had an especially strong profit quarter, with triple- or nearly triple-digit gains for three of the companies [Auburn, WA-based Zones; Merrimack, NH-based PC Connection, and Wayside Technology] and a fourth [Torrance, CA-based PC Mall] swinging to a profit from a loss.”

Transcat sales up, profit down

Quarter ended: June 24 The facts: Sales for the manufacturer/marketer of testing, measurement, and calibration equipment increased 10%, to $15.5 million, but net income fell 33%, to $116,000. CEO Carl E. Sassano said in a statement that the company’s income was hurt by a provision for income taxes. Last year the income-tax provision had been offset by a reduction in deferred tax asset valuation reserve. On the positive side, sales grew in both the distribution products and the calibration services segments. The skinny: During its fiscal year ended March 25, Transcat made two strategic acquisitions that pushed the number of the company’s “Calibration Centers of Excellence” to 12. The company established a presence in the Puerto Rican market with the acquisition of Hilton Engineering’s calibration services facility. It also acquired Fort Wayne, IN-based N.W. Calibration Inspection (NWCI).

In the Zones

Quarter ended: June 30 The facts: Computer reseller Zones reported a 14% hike in second-quarter revenue. Sales totaled $145.2 million, compared with $127.6 million for the same quarter of last year. More impressive is that net income swelled 125%, from $1.3 million last year to a record $2.9 million. Zones managed this feat by improving its gross margins as well as its operating margins, Rose says. “The outlook for the next quarter looks bright for Zones as well,” he adds, referring to the August deal in which Safend Ltd. and Kingston Technology Co. chose to market their new IT security system through Zones. The skinny: Direct (“unassisted”) online orders accounted for $44.2 million in sales, an increase of 108% over the same period last year and representing nearly 31% of total sales for the quarter.

Bottom line’s up for Sport Supply Group

Quarter ended: March 31 The facts: Dallas-based Sport Supply Group, which sells sporting goods and physical-education equipment to schools, organizations, and institutions, saw second-quarter sales inch upward just 2%, to $27.8 million. Net income took off, however, climbing 59%, to nearly $2.5 million. But the improvement in profit is “somewhat superficial,” Rose cautions, because the gain resulted from discontinued operations, which are nonrecurring. The skinny: Sport Supply Group’s shareholders are taking legal action against former management for what they contend was a lapse in fiduciary responsibility regarding an acquisition opportunity with Emerson Radio Corp. Shareholders say that former management disregarded several conflicts of interest and acted for their own personal gain rather than for the benefit of the shareholders.

Company 2Q REVENUE 2Q NET INCOME (LOSS)
12 months prior Current quarter Increase (decrease) 12 months prior Current quarter Increase (decrease)
(000) (000)
Black Box Corp. $179,282 $230,395 29% $7,394 $7,807 6%
CDW Computer Centers 1,539,595 1,633,458 6% 67,061 73,111 9%
Deluxe Corp. 434,000 403,000 (7%) 42,000 (2,000) NM
Henry Schein 1,104,428 1,220,360 10% 36,957 45,218 22%
MSC Industrial 288,465 329,817 14% 30,688 37,018 21%
PC Connection 350,710 408,094 16% 1,564 3,111 99%
PC Mall 253,170 234,119 (8%) (1,152) 395 NM
Sport Supply Group 27,252 27,809 2% 1,549 2,460 59%
Tessco Technologies 148,323 111,940 (25%) 1,235 1,853 50%
Transcat 14,065 15,519 10% 174 116 (33%)
Wayside Technology 30,052 41,438 38% 185 781 322%
Zones 127,630 145,210 14% 1,296 2,917 125%
Notes: NM = not meaningful
Source: Tully & Holland