The computer catalogers fared better than the general b-to-b mailers: All either turned a profit or cut their losses for the quarter.
So much for heading into the fourth quarter with momentum. Some of the publicly traded business-to-business catalogers tracked by Catalog Age couldn’t complete the third quarter in the black – black and blue is more like it.
Just as a number of publicly traded consumer catalogers had trouble turning a third-quarter profit (see “Where Are the Profits?”, November 2000 issue), six of the nine business-to-business catalogers tracked either lost money or suffered a decline in income compared with the third quarter of 1999. Only Henry Schein, MSC Industrial Direct, and Tessco Technologies beat last year’s third-quarter profits.
Evidence of a slowdown “There’s a slowdown with some of the catalog companies out there,” says Jim Adams, managing director of Boston-based investment firm Ulin & Holland. “Either demand for the product slowed, or rising marketing or infrastructure costs dragged on earnings.”
For instance, JLK Direct Distribution, a Latrobe, PA-based industrial tools cataloger, has seen continued softness in its market. The company’s net income fell 92%, from nearly $4.2 million to $341,000 for the quarter ended Sept. 30. JLK’s sales for the third quarter increased a paltry 2%, to $120.5 million.
San Jose, CA-based desktop telephony tools marketer Hello Direct – usually a steady performer – saw net income for the third quarter decrease 13%, to $907,000, from more than $1.0 million. Chief financial officer Kip Witter says if not for the bankruptcy of one of its main catalog insert advertisers – which resulted in a one-time write-off for the cataloger – Hello Direct’s profits would have been $1.1 million, a 7% increase. The cataloger did report an 18% sales increase for the quarter, to $23.9 million from $20.2 million in the third quarter of 1999.
Computers segment still rolling Despite intense pricing pressures from competition, every computer cataloger except Creative Computers and Programmer’s Paradise turned a profit. And even those two catalogers managed to lessen their losses considerably from this time last year.
For instance, Shrewsbury, NJ-based Programmer’s Paradise, which sells software for computing professionals, sliced nearly $2 million from its net loss. For the three months ended Sept. 30, it lost $452,000, compared to a loss of $2.3 million a year ago.
Vernon Hills, IL-based CDW Computer Centers enjoyed a 71% increase in profits to $44.9 million, from $26.2 million in the third quarter of 1999. According to CDW, sales of servers and notebook computers boosted results. Third-quarter net sales jumped 51%, to $1.03 billion from $683.0 million. CDW’s Web sales were $120.5 million, a 167% increase from the previous third quarter.
But Port Washington, NY-based Systemax, which sells private-label PCs on a build-to-order basis as well as industrial supplies, attributes its eroding profits to increased technical support and service costs in its PC-assembly business. (The company markets its computers under the Midwest Micro, Systemax, Tiger, and Ultra brands.) Likewise, it blames much of its overall sales decline of 7%, to $409.8 million, on softness in computer-related sales in North America. Systemax’s gross profit fell to $47.8 million for the quarter from $77.7 million a year earlier. And selling, general, and administrative (SGA) expenses increased 11%, to $68.8 million from $61.9 million in the third quarter of 1999. But lower sales from the higher-margin industrial products also contributed to the net loss of $14.2 million for the quarter.
Insight Enterprises Thanks to quarterly sales of notebook computers – which grew at a 78% clip – Phoenix-based computer reseller Insight is climbing faster than the mercury in an Arizona thermometer. Sales jumped 36%, to $540 million from $397 million in the same period in 1999. More impressive, however, is that profits skyrocketed 72%, to $16.2 million, at a time when industry powerhouses Dell Computer and Gateway were warning investors of sales and earnings slowdowns. Insight says unassisted Web sales – transactions completed online without the aid of a rep – continued to climb, which lowered SGA expenses.
Transmation The Rochester, NY-based marketer of calibration, measurement, and testing equipment posted a $256,000 net loss for the quarter, compared to a profit of $283,000 for third quarter of last year. Sales declined 12%, to $17.2 million from $19.6 million. Adding insult to injury, Transmation had to ship backorders from subsidiary Metermaster, which it acquired in 1999, and it took a $400,000 charge for its Web subsidiary, Metersandinstruments.com. Then there were, in the words of vice president of finance John Misiaszek, “adverse exchange rates on shipping to international markets, particularly in the Far East.”