SYX Systemax Inc

Systemax Inc. (NYSE:SYX) today announced financial results for the second quarter and six months ended June 30, 2010.

Performance Summary

(U.S. dollars in millions, except per share data)

Highlights Quarter Ended June 30,   Six Months Ended June 30,     2010     2009     2010     2009   Sales $ 805.9   $ 721.6   $ 1,721.1   $ 1,473.9   Gross profit $ 115.2   $ 107.1   $ 241.5   $ 214.6   Gross margin   14.3 %   14.8 %   14.0 %   14.6 % Operating income $ 16.0   $ 8.7   $ 36.4   $ 23.7   Operating margin   2.0 %   1.2 %   2.1 %   1.6 % Diluted earnings per share $ 0.25   $ 0.17   $ 0.56   $ 0.41  

Second Quarter 2010 Financial Highlights:

• Consolidated sales grew 12% to a record $805.9 million in U.S. dollars. On a constant currency basis and excluding WStore, sales grew 6%.
• Diluted earnings per share (EPS) grew 47% to $0.25.
• Business to business channel sales grew 35% to $417.4 million in U.S. dollars. On a constant currency basis and excluding WStore, sales grew 22%.
• Consumer channel sales declined 6% to $388.5 million in U.S. dollars. Sales also declined 6% on a constant currency basis and excluding WStore.
• “Same store” business to business channel sales grew 21% while same store consumer channel sales declined 11%.

Six Months 2010 Financial Highlights:

• Consolidated sales grew 17% to a record $1.7 billion in U.S. dollars. On a constant currency basis and excluding WStore results, sales grew 9%.
• Diluted EPS grew 37% to $0.56.
• Business to business channel sales grew 37% to $862.7 million in U.S. dollars. On a constant currency basis and excluding WStore results, sales grew 25%.
• Consumer channel sales grew 2% to $858.4 million in U.S. dollars. On a constant currency basis and excluding WStore results, sales declined 3%.

Richard Leeds, Chairman and Chief Executive Officer said, “Systemax’s solid second quarter performance, with consolidated sales growth of 12% and all-time record revenues, was once again led by our business to business channels, which produced strong results as small- and mid-sized businesses have started to return to more normalized spending. Our consolidated results demonstrate the benefits of our business diversification, one of the leading components of our long-term growth strategy, and continue to buffer the challenging consumer spending environment. Looking ahead, we remain focused on prudently building our businesses and leveraging our robust brand portfolio.”

Gilbert Fiorentino, Chief Executive of Systemax’s Technology Products Group said, “We are executing on our strategic initiatives and the B2B channel continues to perform exceptionally well across geographies and product categories. In particular, Europe delivered an outstanding performance this quarter, with double digit increases on both the top and bottom line and we expect to see additional momentum as we complete the integration of WStore later this year. The consumer environment is challenging; however, we remain optimistic given the unique position of our brands and the growth opportunities we see to expand our presence on the web and at retail. Through our recently launched strategic initiative to co-brand two of our core retail businesses, CompUSA and TigerDirect, we will improve cross promotion to our customers and strengthen our multi-channel strategy.”

Supplemental Channel Sales Summary

(in millions)

Channel Quarter Ended June 30,   Six Months Ended June 30,   2010   2009   2010   2009 Consumer1 $ 388.5 $ 412.6 $ 858.4 $ 842.4 Business to business2

$

417.4 $ 309.0   $ 862.7 $ 631.5 Consolidated Sales $ 805.9 $ 721.6 $ 1,721.1 $ 1,473.9

1Includes sales from retail stores, consumer websites, inbound call centers and television shopping

2Includes sales from managed business relationships, including outbound call centers and extranets, and the entire Industrial Products and Corporate segments

Supplemental “Same Store” Channel Growth3 – Q2 2010 vs Q2 2009 Channel Change Consumer -11 % Business to business 21 % Consolidated sales 3 %

3Comprised of revenue at retail stores, websites and call centers operating for at least 14 full months as of the beginning of the period and computed on a constant currency basis. The method of calculating comparable store and channel sales varies across the retail and direct marketing industry. As a result, Systemax’s method of calculating comparable sales may not be the same as other companies’ methods.

Supplemental Product Category Sales Summary

(in millions)

Product Category Quarter Ended June 30,   Six Months Ended June 30,   2010   2009   2010   2009 Computers $ 201.3 $ 206.4 $ 428.9 $ 338.9 Consumer electronics $ 179.0 $ 156.7 $ 384.7 $ 355.3 Computer components $ 123.2 $ 116.4 $ 270.4 $ 262.2 Computer accessories & software $ 224.6 $ 180.2 $ 481.3 $ 394.9 Industrial products $ 62.2 $ 48.8 $

116.8

$ 94.5 Other $ 15.6 $

13.1

 

$ 39.0 $ 28.1 Consolidated sales $ 805.9 $ 721.6 $ 1,721.1 $ 1,473.9 Supplemental Business Unit Sales Summary

(in millions)

Business Unit Quarter Ended June 30,   Six Months Ended June 30, 2010 2009 2010 2009 Technology Products $743.1 $671.8 $1,603.2 $1,377.8 Industrial Products $62.2 $48.8 $116.8 $94.5 Corporate and Other $0.6 $1.0

 

$1.1 $1.6 Consolidated sales $805.9 $721.6 $1,721.1 $1,473.9

Working capital as of June 30, 2010 was $271.6 million, including cash and cash equivalents of $32.8 million. As of June 30, 2010, the Company had availability under its credit facility of approximately $107.1 million and total cash and available liquidity of approximately $140.0 million. Short term debt totaled approximately $13.1 million at June 30, 2010 and included approximately $12.2 million in revolving debt assumed as part of the WStore acquisition. The Company’s effective tax rate for the first six months of 2009 was 37.3%, compared to 34.9% last year. The lower rate in 2009 was the result of the reversal of tax reserves. Excluding these reserve reversals, the Company’s effective tax rate in 2009 was 39.3%. This lower effective tax rate this year is primarily the result of a higher percentage of taxable income outside the U.S. in 2010 where corporate tax rates for the Company are typically lower.

Earnings Conference Call Details

Systemax Inc. will host a teleconference to discuss its second quarter 2010 results today, August 10, 2010 at 5:00 p.m. Eastern Time. To access the teleconference, please dial 877-881-2609 (U.S. callers) or 970-315-0463 (Int’l callers) and reference passcode 91650185 ten minutes prior to the start time. The teleconferencing will also be available via live webcast on the Company’s Web site at www.systemax.com. A replay of the conference call will be available through August 17, 2010. It can be accessed by dialing 800-642-1687 (U.S. callers) or 706-645-9291 (Int’l callers), passcode 91650185. The webcast will also be archived on www.systemax.com for approximately 90 days.

About Systemax Inc.

Systemax Inc. (http://www.systemax.com), a Fortune 1000 company, sells personal computers, computer components and supplies, consumer electronics and industrial products through a system of branded e-Commerce web sites, retail stores, relationship marketers and direct mail catalogs in North America and Europe. The primary brands are TigerDirect, CompUSA, Circuit City, MISCO, WStore and Global Industrial.

Forward-Looking Statements

This press release contains forward-looking statements about the Company’s performance. These statements are based on management’s estimates, assumptions and projections and are not guarantees of future performance. The Company assumes no obligation to update these statements. Actual results may differ materially from results expressed or implied in these statements as the result of risks, uncertainties and other factors including, but not limited to: (a) unanticipated variations in sales volume, (b) economic conditions and exchange rates, (c) actions by competitors, (d) the continuation of key vendor relationships, (e) the ability to maintain satisfactory loan agreements with lenders, (f) risks associated with the delivery of merchandise to customers utilizing common carriers, (g) the operation of the Company’s management information systems, and (h) unanticipated legal and administrative proceedings. Please refer to “Risk Factors” and the Forward Looking Statements sections contained in the Company’s Form 10-K for a more detailed explanation of the inherent limitations in such forward-looking statements.

SYSTEMAX INC.

Condensed Consolidated Statements of Operations – Unaudited (In thousands, except per share amounts)       Quarter Ended Six Months Ended June 30* June 30*   2010     2009     2010     2009   Net sales $ 805,875 $ 721,599 $ 1,721,112 $ 1,473,867 Cost of sales   690,653     614,545     1,479,649     1,259,263   Gross profit 115,222 107,054 241,463 214,604 Gross margin 14.3 % 14.8 % 14.0 % 14.6 % Selling, general and administrative expenses   99,238     98,385     205,103     190,915   Operating income 15,984 8,669 36,360 23,689 Operating margin   2.0 %   1.2 %   2.1 %   1.6 % Interest and other (income) expense, net   966     (291 )   2,545     363   Income before income taxes 15,018 8,960 33,815 23,326 Provision for income taxes 5,568 2,469 12,614 8,137 Effective tax rate   37.1 %   27.6 %   37.3 %   34.9 % Net income $ 9,450   $ 6,491   $ 21,201   $ 15,189   Net margin 1.2 % 0.9 % 1.2 % 1.0 %   Net income per common share: Basic $ 0.26 $ 0.18 $ 0.57 $ 0.41 Diluted $ 0.25 $ 0.17 $ 0.56 $ 0.41   Weighted average common and

common equivalent shares:

Basic 36,967 36,683 36,876 36,652 Diluted 37,726 37,340 37,605 37,308

SYSTEMAX INC.

Condensed Consolidated Balance Sheets - Unaudited (In thousands)     June 30*   December 31*   2010   2009 Current assets: Cash and cash equivalents $ 32,783 $ 58,309 Accounts receivable, net 235,646 241,860 Inventories 380,487 365,725 Prepaid expenses and other current assets   27,900   26,692 Total current assets 676,816 692,586 Property, plant and equipment, net 62,622 65,598 Goodwill, intangibles and other assets   58,106   58,717 Total assets $ 797,544 $ 816,901

 

Current liabilities: Short-term debt $ 13,052 $ 15,197 Accounts payable and accrued expenses   392,199   427,307 Total current liabilities 405,251 442,504 Capitalized lease obligations 793 1,194 Other liabilities 9,571 8,518 Shareholders’ equity   381,929   364,685 Total liabilities and shareholders’ equity $ 797,544 $ 816,901

* Systemax manages its business and reports using a 52-53 week fiscal year that ends at midnight on the Saturday closest to December 31. For clarity of presentation, fiscal years and quarters are described as if they ended on the last day of the respective calendar month. The actual fiscal second quarter ended on July 3, 2010. The second quarters of both 2010 and 2009 included 13 weeks and the six month periods both included 26 weeks.