Feeling the Effects of One-Time Events

Eight of the 13 publicly traded business-to-business and computer catalogers tracked by Catalog Age, or 62%, reported a weaker bottom line for the fourth quarter of 2003 compared with the previous fourth quarter. Yet 77% of the companies reported sales gains, with only Black Box Corp., Sport Supply Group, and Transcat suffering a decline in fourth-quarter revenue.

Blame the dichotomy on one-time events — the sale of a division, for instance, or costs related to a chief executive’s resignation — which “can distort profits,” says Jim Adams, managing director at Wellesley, MA-based investment bank Tully & Holland, which tracks the publicly traded catalogers for Catalog Age.

For example, during the fourth quarter of 2002, business forms marketer New England Business Service (NEBS) had reported a $4.1 million gain from the sale of a long-term investment, which pumped up its profit for that quarter. In the fourth quarter of 2003, NEBS took a $1.7 million restructuring charge. Each of these one-time events resulted in an apparent 25% decline in fourth-quarter net income that doesn’t accurately reflect NEBS’s day-to-day operations.

Computer reseller Zones reported a different type of one-time event. By settling its tax audit dispute with the Washington State Department of Revenue, Zones recorded a one-time benefit of $2.1 million in the fourth quarter of 2003, reversing the fourth-quarter charge taken in 2002. The catalog and the state had been arguing about a tax rate classification of certain vendor cooperative reimbursements.

And wireless communications products marketer Tessco Technologies recorded two one-time charges during the fourth quarter of 2003. It gained $600,000 from insurance proceeds following a water main break in October 2002, but it also lost $2.3 million in a restructuring and consolidation charge following the consolidation of its three facilities to two.


NEBS Sales Up on Safeguard Results

Quarter ended: Dec. 27

The facts: Higher sales and profits in four of its five businesses drove the performance of Groton, MA-based NEBS. Revenue for the quarter increased 29%, to $196.9 million from $152.6 million the previous fourth quarter. Most of that growth resulted from its Safeguard Business Systems, which NEBS acquired last June. Excluding Safeguard, net sales grew about 3%. Net income decreased 25%, to $9.7 million from $12.9 million. Excluding the effect of the unusual items, however, net income was $10.7 million, up 3% from $10.5 million for the comparable quarter of 2002.

The skinny: The company’s U.S. direct marketing sales fell slightly, to $78.9 million from $80.9 million. So did the profit from domestic direct marketing, to $18.2 million from $19.0 million. Net international sales, however, rose 21%, to $13.1 million from $10.8 million.

Zones Posts Double-Digit Sales Growth

Quarter ended: Dec. 31

The facts: Auburn, WA-based Zones returned to the black, netting $2.2 million for the fourth quarter of 2003. During the previous fourth quarter, it had lost $1.1 million. But the settlement with Washington mentioned earlier wasn’t the only reason for the company’s turnaround. Fourth quarter net-sales increased 25%, to $130.3 million, from $104.7 million. And selling, general, and administrative expenses as a percent of net sales were 9%, down from 10%.

The skinny: Sales from the company’s ZonesConnect customized extranet increased to $12.4 million from $9.4 million 12 months prior.

Net Income Plummets at PC Connection

Quarter ended: Dec. 31

The facts: Merrimack, NH-based computer reseller PC Connection suffered a 75% decline in net income, to $730,000 from $2.9 million for the fourth quarter of 2002. Excluding special charges, net income for the fourth quarter of 2003 would have been $1.7 million — a decline of 41%. Net sales nonetheless increased 11%, to $358.4 million from $322.2 million. Small and midsize businesses accounted for the growth: While sales to the federal government decreased year-over-year by 7%, and sales to large corporate customers were flat, sales to small and midsize businesses increased 19%, to $199.6 million.

The skinny: PC Connection increased its fourth-quarter catalog circulation 15%, to 8.7 million from 7.6 million.

Schein Rides Acquisitions to Gains

Quarter ended: Dec. 31

The facts: Melville, NY-based medical and dental supplies giant Henry Schein reported gains on both sides of the ledger. Fourth-quarter net income increased 15%, to $35.5 million from $31.0 million. Net sales increased 27% to $946.9 million, a company record. Dental sales increased 17%, medical sales 35%, international sales 38%, and technology and value-added services sales 4%. Driving the growth: the November acquisitions of Damer & Cartwright Pharmaceutical and American Medical Services, which gave Schein an entry into the specialty and oncology pharmaceutical distribution markets.

The skinny: The fourth quarter of 2003 was Henry Schein’s 14th straight quarter of net income growth.

Systemax Profit Cut in Half on Charges

Quarter ended: Dec. 31

The facts: Sales at Port Washington, NY-based Systemax rose 8%, to $437.5 million from $403.3 million for the previous fourth quarter. But $2.9 million in restructuring and other charges led to an 88% tumble in net income, to $533,000 from $1.0 million.

The skinny: The manufacturer/marketer of computers, office supplies, and warehousing products is streamlining its U.S. operations from three facilities, in New York, Georgia, and California, to one in Naperville, IL, says spokesperson Steven Goldschein. The streamlining, which will result in about 200 layoffs, is scheduled to be complete by May. Another 50 employees in the U.K. will also be laid off following a consolidation of sales offices there. All told, Systemax expects to save about $8 million a year.

12 months prior Current quarter Improvement (decline) 12 months prior Current quarter Improvement (decline) Info as of quarter ended P/E (as of 2/21/04)
Black Box Corp. $153,062 $133,067 (13%) $14,777 $12,193 (17%) 12/28/03 24.59
CDW Computer Centers 1,053,953 1,348,916 28% 45,546 44,554 (2%) 12/31/03 32.85
Henry Schein 747,403 946,924 27% 30,963 35,542 15% 12/31/03 22.78
MSC Industrial 210,692 222,761 6% 12,481 16,476 32% 11/29/03 35.20
New England Business Service 152,599 196,866 29% 12,921 9,682 (25%) 12/27/03 26.80
PC Connection 322,150 358,376 11% 2,864 730 (75%) 12/31/03 37.28
PC Mall 236,305 289,932 23% 5,373 1,105 (79%) 12/31/03 58.24
Programmer’s Paradise 14,886 19,965 34% (291) 390 NM 12/31/03 29.25
Sport Supply Group 15,126 14,726 (3%) (2,359) 581 NM 12/26/03 N/A
Systemax 403,347 437,508 8% 1,001 533 (88%) 12/31/03 31.99
Tessco Technologies 65,010 93,132 43% 311 (543) NM 12/28/03 34.63
Transcat 14,578 13,551 (7%) 1,330 (220) NM 12/27/03 9.30
Zones 104,659 130,336 25% (1,093) 2,205 NM 12/31/03 28.76
Dow Jones Industrial Average 20.33
Standard & Poor’s 500 Index 29.66
Notes: Price-to-earnings ratios are from various sources
NM = not meaningful NA = not available
Source: Tully & Holland

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