Financial Reports: Grainger, PC Connection, Zones, Guitar Center

Grainger Grows Profit on Flat Sales

Chicago-based maintenance, repair, and operating supplier W.W. Grainger (NYSE: GWW) reported a 7% increase in annual net earnings. Earnings for the year ended Dec. 31 were $227 million, compared with $212 million for 2002. Annual sales were flat with last year at $4.7 billion.

Sales for the quarter ended Dec. 31 increased 3%, to $1.2 billion. Fourth-quarter net earnings fell fell to $62 million from $63 million the previous year.

Sales for Grainger subsidiary Lab Safety increased 16% for the quarter due to the acquisition of the Gempler’s catalog in February 2003. Excluding Gempler’s sales, Lab Safety’s sales were flat. Strong December sales reflected Gempler’s participation as a supplier in a customer loyalty program, Harvest Partners. Lab Safety sales to customers in the forestry and environmental markets were up while sales to manufacturing customers were soft. Operating earnings were up 4% due to improved gross profits, partially offset by increased catalog media expenses and higher warehousing costs related to Gempler’s.

Net Income Jumps at PC Connection
Merrimack, NH-based PC Connection (Nasdaq: PCCC) enjoyed a 10% increase in annual sales and an 84% leap in annual income. For the year ended Dec. 31, the computer reseller posted net income of $5.9 million on sales of $1.31 billion. For 2002, it had netted $3.2 million on sales of $1.19 billion.

Fourth-quarter sales rose 11%, to $358.4 million from $322.2 million the previous year. Net income for the quarter was $700,000, compared with $2.9 million last year. Excluding special charges, pro forma net income for the quarter just ended would have been $1.7 million.

Zones Post Yearly Profit on Settled Tax Audit Dispute
Auburn, WA-based computer reseller Zones (Nasdaq: ZONS) ended 2003 in the black, with net earnings of $1.6 million for the year ended Dec. 31. In 2002 the company had lost $515,000. Annual sales increased 11%, to $460.8 million from $414.6 million the previous year.

Fourth-quarter net income was $2.2 million, compared with a net loss of $1.1 million for the fourth quarter of 2002. Fourth quarter net sales grew 25%, to $130.3 million from $104.7 million. Total selling, general, and administrative expenses as a percent of net sales were 8.5% in the fourth quarter of 2003, down from 9.7% the previous year.

In other news, Zones settled its state tax audit dispute with the Washington State Department of Revenue. The audit results have been under appeal since Zones received an agency letter in November 2002. The settlement resolves the tax rate classification of certain vendor cooperative reimbursements under the Washington business and occupation tax. The agreement covers the audit periods 1996-1999 and all periods thereafter through August 2003. Zonesy will record a one-time benefit of $2.1 million in the fourth quarter of 2003, effectively reversing the fourth-quarter charge taken in 2002 related to this assessment.

Guitar Center Ends 2003 on a High Note
Westlake Village, CA-based cataloger/retailer Guitar Center (NasdaqNMS: GTRC), which mails the Musician’s Friend catalog, grew its annual sales 16%, to $1.28 billion for the year ended Dec. 31. Catalog and Web sales increased 24%, to $257.9 million from $208.7 million in 2002. Net income increased 46% to $36.9 million.

Fourth-quarter net sales increased 18%, to $395.8 million. Net income for the quarter increased 47%, to $19.7 million. Direct sales for the quarter rose 19%, to $78.5 million from $66.0 million in the fourth quarter of 2002.

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