It May Not Be the Economy, Stupid

The holiday shopping season prevented a number of consumer catalogers from feeling the economic malaise until the first quarter of 2001. Not all business-to-business mailers were as lucky, however. Three of the 14 publicly traded b-to-b and computer marketers tracked by Catalog Age saw a drop in fourth-quarter sales, and four suffered damage to their bottom line.

But Jim Adams, managing director of Boston-based investment bank Ulin & Holland, says that the economy isn’t solely to blame for those companies’ disappointing performance. “Some of these companies are suffering more from problems internally than from the economy,” he says. “I don’t think there’s a slowdown coming in the business-to-business segment. Selling in the b-to-b space is more consistent [than among the consumer segment] because the demand for products among businesses is more consistent.”

In fact, in the computer segment, where there has been an industrywide drop in demand, all but one of the catalogers (IdeaMall) beat their sales of the previous fourth quarter. And all but one (PC Connection) managed to improve their net income. In fact, IdeaMall and Multiple Zones International even managed to change red ink into black.

12 Months Prior Current Quarter Improvement (Decline) 12 Months Prior Current Quarter Improvement (Decline) Info as of Quarter Ended P/E (as of 2/15/00)
BUSINESS-TO-BUSINESS Henry Schein 609,954 655,632 7% 12,732 15,539 18% 12/30/00 25.92
Moore Medical Corp. 29,000 30,700 6% 100 (3,800) NM 12/30/00 N/A
MSC Industrial 182,761 211,107 16% 10,491 13,505 29% 11/25/00 20.73
New England Business Service 137,452 154,922 13% 8,695 8,802 1% 12/23/00 10.96
Sport Supply Group 20,070 18,201 (9%) (1,107) (2,208) NM 12/29/00 N/A
Systemax 478,363 421,466 (12%) 10,705 (9,452) NM 12/31/00 N/A
Tessco Technologies 52,436 69,657 33% 1,376 1,681 22% 12/24/00 13.54
Transmation 19,281 19,418 1% (3,011) 85 NM 12/31/00 N/A
COMPUTER PRODUCTS Black Box Corp. 127,128 218,511 72% 12,305 16,774 36% 12/31/00 17.35
CDW Computer Centers 741,267 1,007,071 36% 29,898 41,999 40% 12/31/00 19.55
IdeaMall 221,243 198,411 (10%) (2,281) 2,399 NM 12/31/00 N/A
Insight Enterprises 417,931 545,348 30% 9,503 14,437 52% 12/31/00 20.00
Multiple Zones International 127,714 166,247 30% (2,713) 96 NM 12/31/00 N/A
PC Connection 324,570 345,143 6% 7,626 5,488 (28%) 12/31/00 10.37
MARKET INDICES Dow Jones Industrial Average
Standard & Poor’s 500 Index
Notes: Price-to-earnings ratios are from various sources
NM = not meaningful NA = not available

Multiple Zones Profits from Corporate Sales

The Numbers: Renton, WA-based computer reseller Multiple Zones turned things around this quarter. After taking a net loss of $2.7 million during the fourth quarter of 1999, it netted $96,000 this time around. Thanks to its corporate sales division Zones Business Solutions, which sells to small and midsize businesses, total net sales for the quarter increased 30%, to $166.2 million, from $127.7 million last year. But sales within its unit — the PC Zone and Mac Zone catalogs and Websites — tumbled nearly 26%, to $40.5 million.

The Skinny: A case of the tail (Zones Business Solutions) wagging the dog (the catalogs).

Sales Drop, but IdeaMall Nets Income

The Numbers: Torrance, CA-based IdeaMall saw its way back into the black as it reported net income of $2.4 million for the fourth quarter, an improvement of $4.7 million from the previous fourth quarter. The turnaround came despite a 10% tumble in sales, from $221 million to $198 million, because of weak Mac sales.

The Skinny: Watch out for the falling Apple.

Transmation Engineers a Profitable Quarter

The Numbers: Like Multiple Zones and IdeaMall, Rochester, NY-based Transmation stemmed the flow of red ink this quarter. The testing, measurement, and calibration equipment manufacturer/marketer produced net income of $84,692 for the quarter, compared with a loss of $3 million a year ago. Net sales didn’t improve much, though: They totaled $19.4 million vs. $19.3 million last year.

The Skinny: According to president/CEO Robert G. Klimasewski, Transmation’s reorganized sales force, enhanced inventory management system, and reduction of its investment in subsidiary deserve credit for the bottom-line improvements.

NEBS Acquisition Boosts Sales but Keeps Income Flat

The Numbers: A multititle cataloger of business forms, packaging supplies, and the like, Groton, MA-based New England Business Service (NEBS) enjoyed a 13% increase in sales, to $154.9 million from $137.5 million. Its July 2000 acquisition of workwear cataloger PremiumWear was largely responsible for the growth. But the acquisition also prevented net income from rising more than 1%, to $8.8 million from $8.7 million. Those earnings numbers include $395,000 in one-time after-tax charges related to the integration.

The Skinny: Once the integration is complete, the acquisition of PremiumWear is bound to pay dividends to the bottom line as well as the top.

Operating Problems Sink Systemax Into the Red

The Numbers: Net sales at computer, office products, and warehouse supplies manufacturer/marketer Systemax fell 12%, to $421.5 million from $478.4 million. Worse, the Port Washington, NY-based company’s net loss for the quarter reached $9.5 million, compared with net income of $10.7 million a year prior.

The Skinny: The company blames its woes on operating problems at its PC assembly facility, Systemax Manufacturing (formerly known as Midwest Micro Corp.). To rectify the situation, Systemax had installed a new management team with intensive computer-manufacturing experience and has reduced its inventory levels 20%.

Moore Medical Feels the Pain

The Numbers: Sales improved 6% for Moore Medical Corp., to $30.7 million from $29.0 million last year. But the New Britain, CT-based medical supplies cataloger took a loss of $3.8 million, compared to a profit of $100,000 for the fourth quarter of 1999. Current operations aren’t to blame: Moore had to pay the U.S. government $2.5 million for liability and legal costs stemming from a pricing error by its former wholesale division in federal supply contracts dating back to 1991.

The Skinny: In 1997, Moore Medical disclosed the pricing error in its federal contracts to the government and established a $3.8 million reserve. In February 2000 it signed an agreement to pay the government $5.2 million: $500,000 on signing and $4.7 million during a period of five years.

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