Financial Reports: PC Connection, Sears, Office Depot

Sales, Earnings Increase at PC Connection Merrimack, NH-based computer products cataloger PC Connection (Nasdaq:PCCC) posted a 4% net sales increase to $335.3 million for the three months ended June 30, compared with $321.6 million for the period last year. Net income for the quarter increased to $2.3 million, compared to $1.4 million last year.

Net sales for the small and midsize business (SMB) segment increased 4% to $194.1 million. Sales to government and education customers declined 16% to $63.3 million, but sales to state, local, and education customers rose 20% compared with last year. Sales to large corporate account customers increased 30% to $77.9 million when compared with last year. Year-over-year sales to the federal government declined 65%.

In a company release, PC Connection said it expects to receive its General Services Admnistration schedule, which will help boost federal government sales. Last November, PC Connection’s GSA Schedule was cancelled for failure to comply.

Weak Apparel, Sale of Credit Business Hurts Sears Hoffman Estates, IL-based Sears, Roebuck and Co. (NYSE: S), which owns Dodgeville, WI-based apparel and home goods giant Lands’ End, reported lower quarterly profit because of sluggish apparel sales and the sale of its profitable credit card division last fall.

During the quarter ended July 3, merchandise sales and services fell 2% to $8.70 billion, compared with $8.90 billion last year. (Sears does not break out Lands’ End sales separately.) What really hurt sales was revenue from its credit card business, which the company sold to Citigroup in November. Revenue for the credit business fell to $81 million, compared with $1.3 billion last year.

Earnings plummeted to $53 million in the second quarter, compared with $309 million a year earlier. During the quarter, Sears’ was hit with two pretax charges, including $41 million for severance costs associated with the restructuring of the company’s home office organization and field initiatives to gain efficiency, primarily in back office operations. The second charge of $39 million was for additional depreciation expense.

The Sears Canada unit reported operating income of $11 million for the second quarter of 2004, compared with operating income of $23 million in the second quarter of 2003. Revenue for the second quarter increased 5% percent to $1.1 billion, primarily due to the effects of foreign exchange.

“Like much of the industry, we experienced weak demand in June,” said Alan J. Lacy, chairman/CEO in company statement. “That, combined with the overhang of our spring apparel assortment and inventory issues, resulted in a disappointing quarter.”

Net Income Jumps 34% at Office Depot Delray Beach, FL-based Office Depot (NYSE:ODP), which owns the Viking Office Products catalog business, posted higher quarterly profits and sales.

Net income rose 34% to $79.9 million for the quarter ended June 26, from $59.6 million. Operating profit for the second quarter was $120 million, a 47% increase from last year because continued of improvement in North American Retail performance and the addition of French cataloger/retailer Guilbert to Office Depot’s International Group in June 2003

Total second quarter increased over 12% last year, to $3.2 billion. Total Office Depot Global e-commerce sales jumped 22%, t0 $742 million, compared to last year. In its business services group, which includes Viking, sales increased 3% in the second quarter because of growth in the contract business for the quarter. Viking also said that although catalog sales declined early in the year, they’ve shown improvement during the second quarter. Domestic e-commerce sales grew 12% during the quarter.

The business services group segment experienced gross margin pressure because of an increased mix of larger national contract accounts and catalog promotional activity. But this pressure was more than offset by continued reductions in warehouse and distribution costs as a percentage of sales. Operating profit for the business services group increased 5% in the second quarter.

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