Look, Ma, no losses!

Jan 01, 1999 10:30 PM  By

The song remained the same for most computer and business-to-business catalogers during the third quarter of 1998, but at least it was a happy tune: continued sales and income growth.

In contrast to 1997′s third quarter, which reflected the effects of the 16-day United Parcel Service strike in August, third-quarter 1998 sales sizzled, translating into double-digit increases for all but six of the 20 publicly traded b-to-b and computer catalogers tracked by Catalog Age, and a decrease in revenue for only Moore Medical Corp. and Transmation.

What’s more, not one of the catalogers suffered a net loss for the quarter, although six did experience a drop in profits.

Latrobe, PA-based metalworking tools cataloger JLK Direct Distribution, for instance, saw income tumble 45%, to $3.7 million from $6.8 million last year. “We had not anticipated a weaker economy,” says chief financial officer Mike Mussog. The 47-day strike against General Motors, many of whose subsidiaries are JLK customers, also took its toll, Mussog says. The strike ended in October.

On the positive side, Port Washington, NY-based Global DirectMail Corp., which sells computers and office and industrial supplies, saw its profit skyrocket 348%-to $9.6 million, compared to just $2.1 million last year. And driven by sales of proprietary personal computers, which increased 132% over last year, as well as a 23% increase in European sales, Global’s total revenue rose 39%, to $359.8 million.

“But you really can’t compare this quarter with last year’s third quarter,” cautions Steve Goldschein, senior vice president/chief financial officer for Global. “Last year was the UPS strike, and we didn’t own the private-label PC business.” (Global acquired b-to-b computer manufacturer/marketer Infotel in September 1997.)

Computing profits All eight computer catalogers tracked boasted of revenue increases. But two of them-Creative Computer and Programmer’s Paradise-suffered double-digit decreases in income. Such mixed results, says Nick Holland, managing director of Boston-based investment bank Ulin & Holland, are a clear indication of the tightening margins and fierce competition within the market sector.

“Collectively, the computer catalogers generated just under $1.9 billion in combined sales during the third quarter, a 25% increase over last year’s third quarter,” Holland says. “But among the computer catalogers that showed a profit in both third-quarter ’97 and third-quarter ’98, profitability as a percentage of sales declined from 3.33% to 2.9%.”

CDW Computer Centers is an example of income growth not quite keeping pace with revenue growth. The Vernon Hills, IL-based reseller of desktop computers and accessories increased its revenue 43%, to $462.7 million-but net income grew a slightly less impressive 32%, to $17.1 million. As for the sales jump, “we built our sales force to 625, up 80% from last year,” says Michael P. Krasny, CDW’s chairman/CEO. “I really have to attribute our strong third-quarter numbers to building our account management staff.”-MDF