B-to-B Catalogs: Counting Their Third-Quarter Blessings

Given the economic slowdown — not to mention the Sept. 11 terrorist attacks — it’s not surprising that 13 of the 15 publicly traded business-to-business and computer catalogers tracked by Catalog Age suffered a decline in third-quarter sales. Nonetheless, it’s a stark contrast from a year ago, when 13 of the 16 catalogers tracked boasted third-quarter revenue increases.

What is surprising is that the relatively mild effect on the catalogers’ bottom lines. More than half — 53% — still managed to improve their profits or reduce their losses during the third quarter of 2001. That’s not much worse than a year ago, when 63% saw some sort of third-quarter bottom-line improvement.

Indeed, marketers have reason to be thankful, says Jim Adams, managing director of Boston-based investment bank Ulin & Holland (which tracks the companies for Catalog Age).

“If you look at their bottom lines, given a weakened economy and the aftermath of Sept. 11,” Adams says, “with the exception of PC Connection and Insight [both of which suffered double-digit declines in income], everyone probably feels pretty good about their results.”

CATALOG AGE’S SPOTLIGHT ON THIRD-QUARTER FINANCIALS

PC Mall Gets Back in Black

Yes, third-quarter sales at Torrance, CA-based PC Mall fell 8%, to $171.9 million for the three months ended Sept. 30. But the computer reseller managed to turn around last year’s $714,000 net loss, posting net income of $493,000 instead.

The skinny: According to chief financial officer Ted Sanders, the company is focusing on outbound telemarketing to businesses and deemphasizing the catalog, which explains why consumer catalog sales declined 13% for the quarter.

Little to Cheer at PC Connection

Third-quarter net income for Merrimack, NH-based computer reseller PC Connection was $1.9 million — an 82% decline from $10.3 million last year. The company blames the slide on restructuring costs related to staff reductions and on expenses associated with the proposed — and then abandoned — acquisition of Kent, CT-based Cyberian Outpost. Of course, the 24% tumble in net sales didn’t help matters any. For the three months ended Sept. 30, sales were $308.7 million, compared with $404.9 million for the third quarter of 2000. Total selling, general, and administrative (SG&A) expenses were 9.4% of net sales in the quarter, compared with 8.1% a year ago.

The skinny: Ouch! Quarterly Web sales decreased 27%, to $23.2 million from $31.7 million the previous year.

A Healthy Quarter for Henry Schein

Henry Schein, the Melville, NY-based medical, veterinary, and dental supplies giant, was one of the two catalogers tracked that saw an improvement in third-quarter sales. (The other was Moore Medical Group.) Schein reported a 9% increase in third-quarter sales and an impressive 55% hike in third-quarter net income. For the three months ended Sept. 30, sales were $659.8 million and net income was $25.2 million. The company’s medical division reported sales of $260.0 million for the quarter, a 19% increase from the previous year. International sales totaled $92.8 million, a 4% increase. And dental sales increased 5%, to $276.2 million. But Schein’s veterinary sales declined 6%, to $13.4 million, for the same period.

The skinny: Even in a recession, people get stomach bugs and cavities. And so Schein is projecting continued growth in its medical and dental businesses.

NEBS Sales and Earnings Slide

Sales at business forms and supplies cataloger New England Business Service (NEBS) fell 5%, to $133.5 million from $141.1 million the previous year. Worse, net income tumbled 32%, to less than $1.9 million for the three months ended Sept. 29. The Groton, MA-based company, whose titles include McBee Systems and Rapidforms, faired slightly better domestically than overseas: It posted a 3% dip in U.S. sales, to $66.8 million, and a 2% decline in U.S. profits, to $14.2 million.

The skinny: While most of NEBS’s segments were hurt, its apparel division, which sells workwear and promotional clothing, took the hardest hit. The segment had enjoyed 25% growth a year ago, but it posted a sales decline of 27% this year. “When business gets weak, that’s the first thing that businesses cut,” says chief financial officer Daniel M. Junius.

Earnings at Insight Down 49%

The bad news: Net sales at Tempe, AZ-based computer cataloger Insight Enterprises decreased 9%, to $490.2 million from $540.3 million the previous year. The worse news: Net earnings fell 49%, to $8.3 million from $16.2 million. Breaking it down by segment, Insight Direct, which accounted for 94% of the company’s sales, brought in $463.0 million in revenue, down 8% from $502.9 million a year earlier. Its net earnings decreased 58%, to $5.7 million from $13.7 million. The company’s other unit, Direct Alliance Corp. which provides outsourcing services to manufacturers selling direct, posted net sales of $27.2 million, a 27% decrease from last year’s $37.4 million.

The skinny: Insight is feeling the pain of reduced IT spending by small and midsize businesses. The company reports that its average North American order size fell 11%, to $1,345 from $1,518 last year.

FINANCIAL REPORT
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 11/21/01)
BUSINESS-TO-BUSINESS Henry Schein 603,319 659,774 9% 16,238 25,195 55% 9/29/01 24.73
Moore Medical Corp. 33,038 34,472 4% (567) (126) 78% 9/29/01 N/A
MSC Industrial 209,350 207,923 (1%) 12,456 10,210 (18%) 9/1/01 31.03
New England Business Service 141,118 133,515 (5%) 2,824 1,854 (34%) 9/29/01 12.10
Sport Supply Group 31,968 28,245 (12%) (1,108) (322) 71% 9/28/01 N/A
Systemax 409,795 370,636 (10%) (14,236) 257 NM 9/30/01 N/A
Tessco Technologies 66,602 62,040 (7%) 1,779 900 (49%) 9/30/01 23.15
Transmation 17,179 16,227 (6%) (239) (221) 8% 9/30/01 93.33
COMPUTER PRODUCTS Black Box Corp. 210,169 197,072 (6%) 16,182 17,142 6% 9/30/01 17.16
CDW Computer Centers 1,028,051 991,065 (4%) 44,930 44,235 (2%) 9/30/01 25.60
Insight Enterprises 540,261 490,150 (9%) 16,172 8,278 (49%) 9/30/01 16.36
PC Connection 404,876 308,689 (24%) 10,255 1,916 (81%) 9/30/01 31.66
PC Mall 187,187 171,904 (8%) (714) 493 NM 9/30/01 6.07
Programmer’s Paradise 42,304 24,177 (43%) (452) (428) 5% 9/30/01 N/A
Zones 169,671 120,723 (29%) (137) (257) (88%) 9/30/01 N/A
MARKET INDICES Dow Jones Industrial Average 27.24
Standard & Poor’s 500 Index 30.95
Notes: Price-to-earnings ratios are from various sources
NM = not meaningful NA = not available
Source: Ulin & Holland

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