Good News, Bad News in the First Quarter

For pessimists at business-to-business and computer catalogers, the first quarter of 2003 provided plenty to moan about. “The demand for PCs and software is diminishing at a time when companies are laying off employees,” says Jim Adams, managing director of Wellesley, MA-based investment bank Tully & Holland. And if companies are laying off their workers, “chances are they are not spending money making capital improvements, and some of the catalogers are feeling it.”

At the same time, optimists had reason to smile. Among the 13 publicly traded computer and business-to-business catalogers tracked by Catalog Age, eight — or 63% — posted an increase in first-quarter revenue. What’s more, eight reported an improved bottom line.

In comparison, for the first quarter of 2002, only 54% of the companies reported increased income or a narrower loss, and just 46% could boast of increased sales.


Systemax Turns That Loss Around

Quarter ended: March 31

The facts: Stringent cost controls enabled computer and industrial supplies manufacturer/marketer Systemax to increase its income from operations. The Port Washington, NY-based company posted a 3% increase in first-quarter net sales, to $426.5 million. But the big news was on the other side of the ledger. Net income of $5.0 million, compared with the net loss of $50.4 million that Systemax suffered for the first quarter of 2002. Even taking into account the cumulative effect of the change in accounting for goodwill, last year’s first quarter income would have been only $585,000.

The skinny: Selling, general, and administrative expenses fell 16%, to $61.3 million from $72.7 million last year.

MoreDirect Boosts PC Connection’s Sales

Quarter ended: March 31

The facts: Computer reseller PC Connection enjoyed a 20% growth in first-quarter net sales — thanks to its April 2002 acquisition of MoreDirect, a government supplier. MoreDirect posted $52.3 million in net sales for the first quarter of the year; its sales were not included in PC Connection’s revenue from the first quarter of 2002. Even better, it reversed last year’s first-quarter loss. The Merrimack, NH-based company posted net income of $1.6 million on sales of $283.5 million. For the first quarter of 2002, PC Connection had lost $2.1 million on sales of $237.1 million.

The skinny: During the quarter, PC Connection mailed 21% fewer catalogs — 6.6 million, compared with 8.4 million catalogs a year ago.

Double-Digit Increases at Henry Schein

Quarter ended: March 29

The facts: Medical, dental, and veterinary supplies cataloger Henry Schein reported a 14% first-quarter sales increase, to $738.0 million. Net income rose even more — 26%, to $24.8 million. And acquisitions weren’t the reason for the improved numbers; all quarterly sales growth for the Melville, NY-based mailer was internally generated.

The skinny: Henry Schein reports that membership in Privileges, its customer loyalty program, continues to increase: The program has 12,000 participants.

Ups and Downs at NEBS

Quarter ended: March 29

The facts: Quarterly revenue at New England Business Service (NEBS) was $127.3 million, down 4% from $132.9 million for the comparable quarter of 2002. But net income for the Groton, MA-based marketer rose 27%, to $5.9 million from $4.6 million. Earnings included a $1.0 million pretax gain from the sale of NEBS’s interest in Advantage Payroll Services.

The skinny: The apparel segment — which includes NEBS’s PremiumWear catalog — is struggling. Sales for the unit fell 23%, to $9.3 million from $12.0 million last year. At the same time, the apparel segment’s loss grew to $1.3 million from $992,000 a year ago.

Zones Slips Into the Red

Quarter ended: March 31

The facts: Computer reseller Zones posted a net loss of $646,000 for the first quarter, compared with net income of $81,000 for the first quarter of 2002. Net sales were down slightly, to $98.6 million from $99.8 million.

The skinny: On May 20, a group of Zones’ investors offered $1.00 a share for the common shares it does not already own. The group, led by Zones president/CEO Firoz Lalij, already controls the majority of the company’s outstanding common stock. At press time, the board had appointed a committee to review the proposal.

Record Quarter for CDW

Quarter ended: March 31

The facts: Vernon Hills, IL-based CDW had record first-quarter sales of nearly $1.02 billion, up 1% from $1.00 billion for the first quarter of 2002. Net income also hit a record — $42.4 million, up 4% from $40.8 million last year. Public-sector revenue rose 16%, which the computer reseller said more than made up for a slight dip in corporate sales.

The skinny: CDW’s direct Web sales — those processed directly online without the aid of a customer service representative — climbed 23%, to $232.1 million.

MSC Boosts Bottom Line 50%

Quarter ended: March 1

The facts: Net sales for MSC Industrial Direct’s second fiscal quarter were $209.6 million, up 8% from $194.8 million a year ago. But wait, there’s more: Quarterly net income increased 50%, to $12.8 million from $8.5 million. Gross profit at MSC increased 12%, to $95.0 million. The Melville, NY-based company credits “modest price increases, an increase in freight revenue from shipping-and-handling fees, vendor rebates, a favorable change in product mix, and the success of the company’s efforts to increase gross profit margins with new and existing customers” for its bottom-line boost.

The skinny: Amortization can be your friend. MSC says the $9.1 million cost of producing and distributing catalogs for the quarter are charged to expense over the period that the catalogs remain the most current source of sales, which is typically one year or less.


12 months prior Current quarter Improvement (decline) 12 months prior Current quarter Improvement (decline) Info as of quarter ended P/E (as of 5/21/03)
BUSINESS-TO-BUSINESS Henry Schein $647,093 $737,997 14% $19,730 $24,766 26% 3/29/03 17.20
Moore Medical Corp. 32,437 33,613 4% 195 (164) NM 3/29/03 34.10
MSC Industrial Direct Co. 194,791 209,633 8% 8,477 12,752 50% 3/1/03 29.46
New England Business Service 132,879 127,267 (4%) 4,646 5,886 27% 3/29/03 10.66
Systemax 412,260 426,461 3% (50,386) 5,035 NM 3/31/03 N/A
Tessco Technologies 61,956 69,392 12% 1,352 435 (68%) 3/30/03 10.76
Transcat 16,861 13,915 (17%) (609) 63 NM 3/31/03 8.05
COMPUTER PRODUCTS Black Box Corp. $160,252 $134,812 (16%) $12,948 $4,208 (68%) 3/31/03 14.64
CDW 1,002,836 1,017,619 1% 40,756 42,406 4% 3/31/03 18.64
PC Connection 237,120 283,527 20% (2,100) 1,575 NM 3/31/03 56.92
PC Mall 191,505 234,797 23% (6,445) 292 NM 3/30/03 5.73
Programmer’s Paradise 17,445 15,198 (13%) 98 41 (58%) 3/31/03 N/A
Zones 99,848 98,632 (1%) 81 (646) NM 3/31/03 N/A
MARKET INDICES Dow Jones Industrial Average 21.93
Standard & Poor’s 500 Index 29.32
Notes: Price-to-earnings ratios are from various sources
NM = not meaningful NA = not available
Source: Tully & Holland

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