BUSINESS-TO-BUSINESS

Oct 01, 1999 9:30 PM  By

Both revenue and earnings figures continue to be strong among the publicly traded business-to-business and computer mailers tracked by Catalog Age. Except for Moore Medical Corp., every cataloger tracked reported a gain in second-quarter sales. Moreover, 75% posted an increase in income or a decrease in their net loss.

Among the computer mailers, all but one posted a double-digit gain in revenue. (The exception, Multiple Zones International, made do with a 7.7% rise in net sales.) At Merrimack, NH-based PC Connection, which sells computer equipment to small and midsize businesses, revenue jumped 33%, from $174.3 million to $231.8 million, which the company attributes to its increased outbound telemarketing. Earnings rose 14.2%, to $4.7 million.

While revenue at Shrewsbury, NJ-based Programmer’s Paradise rose nearly 20%, to $60.8 million from $50.8 million, it was the software marketer’s earnings figures that made news. Profits shot up 185%, to $963,000 from $338,000 in the second quarter of last year. But while its return on sales rose from 0.67% to 1.58% (or 1.58 cents earned for every dollar of revenue), that percentage was still well below the 2.4% typical of its computer brethren. And given that Programmer’s Paradise sells software, which generally carries a higher margin than hardware, the cataloger should be able to deliver better profitability than its hardware peers.

While the eight computer catalogers tracked showed a 28% increase in second-quarter revenue and a 162% increase in profits, their overall price-to-earnings ratio (P/E) still lagged behind that of the stock market at large. While the average P/E for the computer group was just under 19.0, the Dow Jones Industrial Average P/E was nearly 26.0, and that of Standard and Poor’s 500 Index was more than 35.0.

“Clearly, investors are skeptical about these catalogers’ ability to deliver continued earnings growth,” says Nick Holland of investment firm Ulin & Holland in Boston. “This concern may be driven by continuing price declines and resulting margin pressure in [the computer] sector.”

Not to mention the belief among investors that Web-only marketers and manufacturers selling direct to buyers on the Web will horn in on computer catalogers’ turf. “I don’t believe the Internet will take market share from [computer catalogers], but that philosophy is partly why the price-to-earnings ratios are lagging,” says Tracey Turner, spokeswoman for PC Connection.

In the business-to-business segment, increased margins from proprietary products boosted the bottom line of telephony tools cataloger Hello Direct. According to president Dennis Waldera, sales of proprietary products such as the Linestein, an analog-to-digital line adapter, helped propel the San Jose, CA-based cataloger’s net income from $579,000 to $828,000, a 43% improvement over last year’s second quarter. In all, Hello Direct has enjoyed 10 consecutive quarters of revenue and earnings growth.