Building through buying

Most of the publicly traded business-to-business and computer merchants posted impressive top-line growth during the second quarter. For three of the largest companies tracked, acquisitions drove much of that growth.

Revenue from acquired businesses helped bolster sales at Shoreham, MN-based checks manufacturer and small-business supplies merchant Deluxe Corp., Melville, NY-based medical, dental, and veterinary cataloger Henry Schein, and Pittsburgh-based computer networking products and services supplier Black Box Corp.

With the exception of Dallas-based Sport Supply Group, every merchant tracked by Wellesley Hills, MA-based investment bank Tully & Holland for Multichannel Merchant saw at least some revenue improvement. Profits, however, were another matter; seven of the 12 companies, or 58%, suffered year-over-year bottom-line erosion. Last year, 75% of the marketers tracked had posted gains. As Tully & Holland’s Tim Tully points out, for several of the firms with profit declines, one-time expenses as a result of recent acquisitions were a contributing factor.

Higher AOV leads to gains at Zones

Quarter ended: June 30 The facts: Despite a drop in the number of transactions, Auburn, WA-based computer reseller Zones was able to report a 3% hike in revenue, thanks to a higher average value. For the second quarter, sales totaled $127.6 million, compared with $124.0 million for the second quarter of last year. While the average order size increased 8%, to $1,340, the number of orders decreased 2%, to 98,852 from 100,706 last year. Sales from outbound telemarketing increased 8%, to $122.7 million. And online orders jumped a whopping 118%, to $21.3 million. Zones’ net income, meanwhile, increased 13%, to $1.3 million from less than $1.2 million last year. The skinny: Zones’ credit-card processing fees in the second quarter declined $58,000, due to an increase in outbound sales to businesses, which tend to purchase on open account rather than by credit card.

Schein shines again

Quarter ended: June 25 The facts: Henry Schein continues to churn out top- and bottom-line gains. Second-quarter net sales increased 21%, to $1.14 billion, which includes 19% local currency growth and nearly 2% related to foreign currency exchange. Net income increased a more modest 3%, to $40.0 million. For the quarter, dental sales rose 19%, including 18% growth in local currencies. Sales of dental consumable merchandise increased nearly 16%, and sales of dental equipment and services were up 29%. Sixteen percent of Schein’s overall growth for the quarter came from acquisitions, with international acquisitions responsible for 62% of the growth. The skinny: Part of the reason Schein’s net income increase was only 3% was that its selling, general, and administrative expenses jumped 35%.

Strong sales, earnings compute for CDW

Quarter ended: June 30 The facts: Sales at Vernon Hills, IL-based computer reseller CDW Corp. increased 11%, to $1.54 billion from $1.38 billion for the comparable quarter of last year. Net income increased 15%, to $67.1 million from $58.3 million. The total average daily sales for the second quarter rose 11%, to nearly $24.1 million from $21.6 million for 2004. Within the corporate sector, average daily sales rose 9%, to $18.2 million; total corporate sector sales for the quarter were just shy of $1.17 billion. Average daily sales for the public sector (government and educational buyers) were $5.82 million, an 18% increase over last year, while total public sector sales in the second quarter were $372.2 million. The skinny: Direct Web sales — those completed without the help of a customer service rep — increased 14%, to $422.6 million from $369.6 million last year.

Company 12 months prior Current quarter Increase (decrease) 12 months prior Current quarter Increase (decrease)
(000) (000)
Black Box Corp. $124,355 $179,282 44% $10,003 $7,394 (26%)
CDW Corp. 1,382,904 1,539,595 11% 58,275 67,061 15%
Deluxe Corp. 309,000 434,000 40% 46,000 42,000 (9%)
Henry Schein 945,690 1,141,620 21% 38,936 39,974 3%
MSC Industrial 255,297 288,465 13% 23,873 30,688 29%
PC Connection 335,335 350,710 5% 2,256 1,726 (23%)
PC Mall 231,613 253,170 9% 707 (1,152) NM
Programmer’s Paradise 25,093 30,052 20% 523 185 (65%)
Sport Supply Group 25,104 23,226 (7%) 1,296 621 (52%)
Tessco Technologies 110,605 148,323 34% 1,443 1,235 (14%)
Transcat 13,222 14,065 6% (427) 174 NM
Zones 124,023 127,630 3% 1,151 1,296 13%
Notes: NM = not meaningful
Source: Tully & Holland

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