Computer sellers lead the charge

Jul 01, 2006 9:30 PM  By

Of the 10 publicly traded business-to-business and computer merchants tracked, all but three showed year-over-year sales increases for the first three months of the year. The same was true for the other side of the ledger: Only three of the 10 companies saw a decline in net income.

What’s more, just one of the companies — computer reseller PC Mall — ended the quarter with a loss. And PC Mall’s loss of $55,000 was a small fraction of the nearly $4.2 million it had lost during the comparable period of last year.

The computer companies in fact benefited the most during the three-month period. “The latest quarter saw significant changes in earnings for most of the companies in our index,” says Stuart Rose, managing director of Wellesley, MA-based investment bank Tully & Holland, which tracks public companies for Multichannel Merchant. “Four of the five computer product marketers experienced significant improvements in net earnings.” The exception was Vernon Hills, IL-based CDW Corp., whose net income, at $61.7 million, was all but flat on an 8% rise in revenue.

More typical of the computer merchants was software cataloger Programmer’s Paradise. The Shrewsbury, NJ-based company nearly doubled its earnings by keeping its selling, general, and administrative (SGA) expenses flat on a 17% increase in sales. “All the increase in gross margin fell to the bottom line,” Rose says. Given the razor-thin margins in this products category, expense control is especially important, he adds. “Even small increases in sales can make enormous differences in earnings given good expense and margin control.”

Industrial-strength growth for MSC

Quarter ended: Feb. 25 The facts: Melville, NY-based maintenance, repair, and operations (MRO) supplier MSC Industrial Direct Co. saw year-over-year sales climb 13%, to $305.9 million, and net income grow 22%, to $33.3 million. And expect more growth to come: In March the company announced the acquisition of J&L Industrial Supply, the catalog division of $1.8 billion Latrobe, PA-based manufacturer/marketer Kennametal, for $349.5 million (see “MSC buys J&L” in the April issue). Southfield, MI-based J&L had sales of $257.5 million last year. The skinny: Ranked 86th on BusinessWeek‘s Top 100 Hot Growth Companies, MSC has seen annual profits rise an average of 46% during the past three years on top of an average annual sales growth of 11.6%.

Bottom line way up for Transcat

Quarter ended: March 25 The facts: The Rochester, NY-based manufacturer/marketer of testing, measurement, and calibration equipment saw its bottom line soar 449%, to nearly $2.8 million from $504,000 a year ago. Sales for the quarter grew a more modest 3%, to just over $16 million. CEO Carl Sassano said in a statement that the company’s profitability during the past four years has led to “Transcat’s business turnaround from problems of the late ’90s.” The skinny: Transcat’s margins fell during the quarter, and its gross margin percent was flat. The company’s increase in net earnings came mostly below the line in tax accounts.

PC Connection records record revenue

Quarter ended: March 31 The facts: The Merrimack, NH-based computer reseller posted record first-quarter sales of $380.5 million, a 17% increase from the first quarter of 2005. Even more impressive: Net income grew 80%, to $1.7 million. Net sales for the company’s small and midsize business (SMB) division increased more than 9%, to $219.1 million. Sales to large-account customers increased nearly 42%, to $108.4 million, due in large part to the company’s October 2005 acquisition of Amherst Technologies, a Manchester, NH-based IT solutions provider. Gross profit margin as a percentage of net sales was 12.2% in the first quarter, compared with 11.5% in the first quarter of 2005 and 11.0% in the fourth quarter of 2005. The skinny: It’s a positive pattern that PC Connection has seen increasing gross margins, increased sales, and an acquisition, according to Rose: “With gross margin in the 10%-13% range, every point of improvement means a great deal to the bottom line.”

1Q REVENUE 1Q NET INCOME (LOSS)
Company 12 months prior Current quarter Increase (decrease) 12 months prior Current quarter Increase (decrease)
(000) (000)
CDW Corp. $1,475,082 $1,588,629 8% $61,397 $61,678 0
Deluxe Corp. 431,997 411,430 (5%) 38,959 24,668 (37%)
Henry Schein 1,062,997 1,161,781 9% 30,873 16,259 (47%)
MSC Industrial Direct Co. 271,365 305,927 13% 27,419 33,329 22%
PC Connection 323,851 380,478 17% 948 1,706 80%
PC Mall 238,374 234,222 (2%) (4,167) (55) NM
Programmer’s Paradise 30,169 35,362 17% 300 591 97%
Tessco Technologies 150,908 96,561 (36%) 1,313 1,058 (19%)
Transcat 15,557 16,054 3% 504 2,765 449%
Zones 126,331 133,998 6% 1,091 1,705 56%
Notes: NM = not meaningful Source: Tully & Holland