Business-to-Business: Plenty of Room for 1Q Improvement

Overall, the first quarter of 2002 was a lackluster one for the business-to-business and computer marketers tracked by Catalog Age. Only 54% managed to boost their bottom line from the previous first quarter, compared with 71% of those tracked a year ago. And just 46% increased their sales, compared with 64% last year.

Adding insult to injury, with the exception of dental, medical, and veterinary supplies cataloger Henry Schein, not one marketer posted more than 3% sales growth. Even Schein didn’t manage to achieve double-digit growth. And of the six catalogers of computer products, only one — CDW Computer Centers — showed any revenue increase at all.

“If the house file is not responding, marketers have been cutting back on mailings to prospects to protect the bottom line,” contends Jim Adams, managing director of Wellesley, MA-based investment bank Tulley & Holland. But protecting a publicly traded company’s bottom line for fear of shareholder reaction can come back to haunt marketers, Adams warns, because the “growth generated by sales is not there.”

SPOTLIGHT ON FIRST-QUARTER FINANCIALS

Healthy Profits at Henry Schein

Quarter ended: March 30

Melville, NY-based Henry Schein improved its first-quarter bottom line 40%, increasing its net income to $19.7 million from $14.1 million last year. Net sales were $647.1 million, a 9% gain from $593.9 million a year earlier. Within its dental supplies group, sales rose 10%, to $295.3 million. Sales of medical supplies grew 15%, and veterinary sales increased 8%. Combined medical and veterinary sales reached $231.4 million. (Henry Schein now reports veterinary revenue with that of the medical division.) International net sales were $105.8 million, a 3% increase in U.S. dollars and a 6% increase in local currencies.

The skinny: Due to increased competition in the online medical and dental supplies arena, Henry Schein will invest more funds improving the “performance, features, and reliability of [its] Internet content and technology,” according to a statement.

Earnings Improvement Loud and Clear at Tessco

Quarter ended: March 31

Wireless communications products marketer Tessco Technologies saw earnings increase more than sixfold, with revenue growth of just 3%. The Hunt Valley, MD-based company’s net income surged to nearly $1.4 million from $220,300 for the first quarter of 2001. Revenue was $62 million, up from $60 million a year ago.

The skinny: Tessco says its Website continues to build customer loyalty and sales while reducing its order entry and customer service costs. The Internet now accounts for about 15% of Tessco’s sales.

Programmer’s Paradise Posts Profit

Quarter ended: March 31

Programmer’s Paradise’s decision to no longer sell Microsoft Select and Enterprise license agreements contributed to a 28% tumble in the company’s first-quarter revenue. Net sales fell from $24.2 million a year ago to $17.4 million. Nonetheless, the cataloger of technical software and hardware turned around last year’s first-quarter net loss of $156,000. The Shrewsbury, NJ-based mailer posted net income of $98,000.

The skinny: The impact of the change in the reseller agreement with Microsoft is expected to reduce Programmer’s sales for the entire year.

NEBS Grows Income Despite Flat Sales

Quarter ended: March 30

Despite all-but-flat sales of $132.9 million, business forms and apparel mailer New England Business Service (NEBS) reported a 31% increase in first-quarter net income, to $4.6 million from $3.5 million last year. Results include $207,000 of after-tax costs related to previously announced restructuring actions, compared with $917,000 of such costs last year.

The skinny: Groton, MA-based NEBS cut costs considerably to improve its profit. For the three months ended March 30, total costs were a scant $335,000.

Backorders Bite into PC Mall’s Income

Quarter ended: March 31

Torrance, CA-based PC Mall reported a 3% decline in first-quarter sales, to $191.5 million from $198.4 million last year. Worse, the company’s net income tumbled 71%, from $1.2 million last year to $356,000. The reseller of Compaq, Microsoft, Apple, IBM, and Hewlett-Packard computer merchandise blamed a 54% increase in backorders of recently introduced products for the decline in both sales and earnings.

The skinny: The cataloger continues to focus on outbound telemarketing, implementing software tools to improve call center monitoring, lead generation, sales reporting and contact management. And in April the company acquired ClubMac catalog parent company Pacific Business Systems, which derives the majority of its sales through outbound telemarketing.

CDW Boasts Record First-Quarter Revenue

Quarter Ended: March 31

First-quarter sales at Vernon Hills, IL-based CDW Computer Centers surpassed $1 billion, making this the largest first quarter in the company’s history. In comparison, sales for the first quarter of 2001 were $987.2 million. Net income rose slightly, to $40.8 million from $40.5 million last year.

The skinny: Even giants like CDW have to watch spending. The company slashed net advertising expenses 74%, to $733,000 from $2.8 million 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 5/14/02)
BUSINESS-TO-BUSINESS Henry Schein 593,895 647,093 9% 14,132 19,730 40% 3/30/02 22.65
Moore Medical Corp. 32,365 32,437 0 (1,097) 195 NM 3/30/02 N/A
MSC Industrial 223,089 194,791 (13%) 14,350 8,680 (40%) 3/2/02 45.24
New England Business Service 132,857 132,879 0 3,547 4,646 31% 3/30/02 16.45
Systemax 405,898 412,260 2% 363 585 61% 3/31/02 167.50
Tessco Technologies 59,988 61,956 3% 220 1,352 515% 3/31/02 17.84
Transmation 20,171 16,863 (16%) 655 (1,210) NM 3/31/02 N/A
COMPUTER PRODUCTS Black Box Corp. 225,157 160,252 (29%) 17,106 12,948 (24%) 3/31/02 14.81
CDW Computer Centers 987,245 1,002,836 2% 40,476 40,756 1% 3/31/02 28.30
PC Connection 301,775 236,160 (22%) 2,433 (2,088) NM 3/31/02 90.91
PC Mall 198,351 191,505 (3%) 1,232 356 (71%) 3/31/02 11.71
Programmer’s Paradise 24,164 17,445 (28%) (156) 98 NM 3/31/02 N/A
Zones 161,169 99,848 (38%) 104 81 (22%) 3/31/02 N/A
MARKET INDICES Dow Jones Industrial Average 27.03
Standard & Poor’s 500 Index 42.73
Notes: Price-to-earnings ratios are from various sources
NM = not meaningful NA = not available
Source: Tulley & Holland

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