For the dozen business-to-business merchants and computer products marketers tracked by Multichannel Merchant, the third quarter brought strong revenue and income gains. All but three of the companies saw year-over-year sales increases, while all but four marketers received a boost in their bottom lines.
“While increasing revenue, most companies were able to keep costs stable, resulting in robust bottom-line growth,” notes Stuart Rose, managing director for Wellesley Hills, MA-based Tully & Holland, which tracks the publicly traded companies for Multichannel Merchant.
Strong demand for both capital equipment and consumables drove growth in the business-to-business sector, Rose says. “Performing particularly well, Systemax achieved record quarterly results, thanks to an increase in Internet sales and higher demand for its technology products within the public sector.”
In the computer products category, the majority of direct merchants achieved high growth driven by increased demand within the commercial and public sectors, Rose says. A number of marketers “capitalized on favorable market conditions by expanding into new geographical areas or acquiring companies to expand their product offerings.”
Direct marketers with an international presence were affected by larger than average foreign exchange fluctuations, Rose adds. But only one company, Transcat, recorded significant losses in connection with foreign exchange.
Up and down quarter at Tessco
Quarter ended: Sept. 30 The facts: Sales at Hunt Valley, MD-based Tessco Technologies, a provider of wireless communications products and services, rose 12%, to $132.5 million, up from $118.6 million. But net income tumbled 61%, to $716,000, compared with $1.8 million for the same period in 2006. As Tessco grew its mobile devices and accessories segment, it felt pricing pressure by large commercial customers such as AT&T and Nokia, Rose says. As a result, gross margins decreased 4.5% year-over-year. Tessco also increased operating expenses to support its sales growth. The result: a 61% decrease in net income. The skinny: Rose says the company hopes to shield itself from future pricing pressure by diversifying both its product line and its customer base. But, he notes, “with the market slowing down, expect Tessco’s pricing problem to continue.”
Serious increases for MSC Industrial
Quarter ended: Sept. 1 The facts: Sales at maintenance repair and operations (MRO) supplier MSC Industrial Direct rose 17%, to $450.5 million, up from $385.8 million. For the three months ended Sept. 1, the Melville, NY-based merchant recorded net income of $47.4 million — an increase of nearly 40% over the same quarter in 2006. “Like Tessco, MSC Industrial Direct saw sales grow, thanks in part to large account customers,” Rose says. The company also overcame pricing pressures by controlling costs and focusing on efficient sales channels. The skinny: MSC Industrial Direct’s cost-cutting measures include a concerted effort to promote the company’s Website, which now accounts for more than 25% of its sales.
Sales and profits slide at Black Box
Quarter ended: Sept. 29 The facts: Sales for networking products marketer Black Box Corp. slipped 4%, to $260.6 million, and net income slid 3%, to $11.3 million. Why is Black Box struggling? The merchant has acquired five companies in the past two years, Rose says, but it attributed its top-line erosion to post-merger customer attrition. Black Box also faced price increases, he adds, “which resulted in declining margins across all segments.” Despite this, Rose says, “the company continues to reduce SG&A and seems well positioned to rebound from a sub-par quarter.” The skinny: Positive growth in European markets is an encouraging sign as Lawrence, PA-based Black Box continues to expand outside of the U.S., Rose says.
| REVENUE | NET INCOME (LOSS) | |||||
|---|---|---|---|---|---|---|
| Company | 12 months prior | Current quarter | Increase (decrease) | 12 months prior | Current quarter | Increase (decrease) |
| ($000) | ($000) | |||||
| Black Box Corp. | 271,325 | 260,630 | (4%) | 11,675 | 11,310 | (3%) |
| Deluxe Corp. | 398,100 | 388,600 | (2%) | 31,200 | 32,200 | 3% |
| Henry Schein | 1,246,553 | 1,505,575 | 21% | 39,285 | 59,573 | 52% |
| MSC Industrial | 385,869 | 450,499 | 17% | 34,107 | 47,362 | 39% |
| PC Connection | 415,213 | 456,470 | 10% | 4,388 | 7,685 | 75% |
| PC Mall | 242,171 | 287,688 | 19% | 1,908 | 2,978 | 56% |
| Sport Supply Group | 68,163 | 70,374 | 3% | 3,295 | 4,096 | 24% |
| Systemax | 575,041 | 687,317 | 20% | 12,451 | 17,644 | 42% |
| Tessco Technologies | 118,656 | 132,518 | 12% | 1,856 | 716 | (61%) |
| Transcat | 14,860 | 16,625 | 12% | 246 | 194 | (21%) |
| Wayside Technology | 48,679 | 41,790 | (14%) | 859 | 822 | (4%) |
| Zones | 137,900 | 162,970 | 18% | 2,080 | 2,611 | 26% |
| Source: Tully & Holland | ||||||