Revenue rising yet again: Business-to-business

Once again, most of the publicly traded business-to-business mailers tracked by Catalog Age boasted strong profits for the second quarter. But half of the public computer catalogers suffered a decline in earnings, despite at least modest sales gains.

Take Torrance, CA-based Creative Computers, which reported quarterly sales of $149.9 million-a 29% increase over the second quarter of 1997-but suffered a 72% plunge in profit, from $760,000 to $212,000.

“While the computer companies, such as Micro Warehouse and Multiple Zones, continue to show rapid growth, they generate lower return on sales as a group because of intense competition from other computer catalogs as well as retailers,” says Nick Holland of Boston-based investment firm Ulin & Holland.

But for Norwalk, CT-based Micro Warehouse, its second-quarter net loss of more than $5 million (compared to net income of $7.8 million 12 months prior) stemmed less from market conditions than from the settlement of a $19 million lawsuit filed by shareholders of Inmac Corp., with which Micro Warehouse entered into a stock merger in January 1996. The shareholders charged that Micro Warehouse made inaccurate financial statements regarding the 1992-95 fiscal years, which artificially inflated its stock price.

Of the 11 business-to-business catalogers tracked, only three-Global DirectMail Corp., Henry Schein, and New England Business Service-saw profits dip. Computer, warehouse, and office supplies cataloger Global DirectMail reported $330.4 million in sales during the second quarter-a 27.3% increase from last year. But the Port Washington, NY-based company suffered a 34.7% drop in its profits, mostly because of low margins of its computer products and increased pricing pressures from competitors.

On the flip side, New Britain, CT-based medical supplies distributor Moore Medical Corp. saw net income increase 167% to $709,000 despite a 61% tumble in sales. Both the sales drop and the profit boost result from the company’s decision to exit the wholesale drug business, a low-margin market (see “Moore Medical returns to health,” p. 14).

Meanwhile, telephony equipment mailer Hello Direct improved its net income 57%, to $579,000, by carrying more proprietary-and higher margin-products.

Internet sales goose growth Except for Moore Medical and calibration equipment cataloger Transmation (which felt the impact of Asia’s economic woes), all of the companies tracked improved sales at least 4%. And for many catalogers, Web sales contributed heavily to the revenue growth.

“The Internet represents an ideal channel for those catalogers selling a whole suite of software and hardware products on the Web,” Holland says. For instance, Hello Direct saw its Internet-related sales more than double, and Web sales for Creative Computer rose 101%-to $8 million-from the same time last year. And Micro Warehouse reported second-quarter Web sales of $41 million.