Sales up but what about profits?

Jun 26, 2005 9:30 PM  By

Of the 11 publicly traded business-to-business and computer merchants tracked by Multichannel Merchant, all but one, PC Connection, could boast of a boost in first-quarter revenue. In fact, 73% of the merchants showed double-digit sales growth.

Tim Tully of Wellesley Hills, MA-based investment bank Tully & Holland, which tracks the publicly traded marketers for Multichannel Merchant, attributed the revenue growth in large part to “a fundamentally strong U.S. economy and business confidence in hiring new sales associates and expanding sales forces, a focus on core business units, and broad-based product line growth across multiple sales channels.”

But despite the sales growth, profitability lagged behind last year: This year 45% of the marketers tracked saw their bottom line erode in the first quarter, compared with just 36% a year ago.

Sport Supply out of the red

Quarter ended: March 31 The facts: Organic revenue growth, improved margins, and cost-cutting initiatives enabled Dallas-based Sport Supply Group to swap the red ink for the black. The manufacturer/marketer of athletic equipment netted $1.5 million for the quarter, a turnaround from last year’s $2.1 million first-quarter net loss. Sales, meanwhile, grew 13%, to $27.3 million, compared with $24.2 million last year. The skinny: By managing its cash flow, accounts receivable, and inventory, Sport Supply has reduced it debt by $4 million since March 2004.

NEBS still contributing to Deluxe

Quarter ended: March 31 The facts: Groton, MA-based New England Business Service (NEBS), acquired in June 2004 by St. Paul, MN-based Deluxe Corp., continues to earn its way for its new parent. Despite a 17% decline in volume within its core business from the loss of a major client, Deluxe hammered out a 41% sales gain, with first-quarter revenue hitting $437 million. NEBS accounted for $160 million of those sales. But NEBS also contributed to the 19% decline in net income, to $39 million, because of its selling, general, administrative, and integration costs. The skinny: NEBS did kick in $4 million to the bottom line, however, with $10 million of acquisition-related amortization costs and $3 million of integration costs.

Sales and earnings down at PC Connection

Quarter ended: March 31 The facts: Strong year-over-year sales growth in large accounts was offset by softness in the small, midsize, and public sector segments at Merrimack, NH-based computer reseller PC Connection. First-quarter net sales slipped 1%, to $323.9 million. Net income fell 18%, to $948,000. Net sales for its commercial business were up 1%, to $276.7 million, and sales to large-account customers climbed 15%, to $76.4 million. But net sales to small and midsize businesses fell 3%, to $200.3 million, and sales to government and education buyers sank 12%, to $47.2 million. The skinny: During the quarter, PC Connection distributed 37% more catalogs: 8.5 million this year, compared with 6.2 million catalogs a year ago.

Another quarter, another billion for CDW

Quarter ended: March 31 The facts: Vernon Hills, IL-based computer merchant CDW Corp. saw an 11% rise in first-quarter profit, to $61.4 million compared with $55.3 million a year earlier. Sales rose 10%, to $1.48 billion from $1.34 billion. Sales within the corporate division, which consists primarily of business customers, rose 10%, to $1.2 billion. Public sector sales — to federal, state, and local government entities, and educational institutions — rose 21%, to $299 million. Direct Web sales were $436 million, a 21% increase from last year, accounting for 30% of total revenue. The skinny: CDW flexed its already impressive marketing muscle by increasing its sales force 10% in the quarter, to 1,985 salespeople, compared with 1,809 last year.

1Q REVENUE 1Q NET INCOME (LOSS)
Company 12 months prior Current quarter Increase (decrease) 12 months prior Current quarter Increase (decrease)
(000) (000)
CDW Corp. $1,336,689 $1,475,082 10% $55,293 $61,397 11%
Deluxe Corp. 309,000 437,000 41% 48,000 39,000 (19%)
Henry Schein 886,631 1,101,410 24% 28,393 33,225 17%
MSC Industrial 230,537 271,365 18% 18,542 27,419 48%
PC Connection 327,635 323,851 (1%) 1,158 948 (18%)
PC Mall 278,123 293,688 6% 136 (4,167) NM
Programmer’s Paradise 20,679 30,169 46% 362 300 (17%)
Sport Supply Group 24,162 27,252 13% (2,094) 1,549 NM
Tessco Technologies 107,623 150,908 40% 1,459 1,313 (10%)
Transcat 15,275 15,557 2% 43 504 1,072%
Zones 114,092 126,331 11% 791 1,091 38%
Notes: Price-to-earnings ratios are from various sources
NM = not meaningful
Source: Tully & Holland