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.
CATALOG AGE’S SPOTLIGHT ON FIRST-QUARTER FINANCIALS
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.
FINANCIAL REPORT
| REVENUE $000 | NET INCOME (LOSS) $000 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 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 | ||||||||