SYX Systemax Inc

Systemax Inc. (NYSE:SYX) today announced financial results for the third quarter and nine months ended September 30, 2010.

 

Performance Summary

(U.S. dollars in millions, except per share data)   Highlights   Quarter Ended     Nine Months Ended     September 30,     September 30,     2010     2009     2010     2009 Sales   $ 862.7       $ 753.9       $ 2,583.8       $ 2,227.7   Gross profit   $ 116.7       $ 112.8       $ 358.2       $ 327.4   Gross margin     13.5 %       15.0 %       13.9 %       14.7 % Operating income   $ 12.0       $ 19.4       $ 48.4       $ 43.1   Operating margin     1.4 %       2.6 %       1.9 %       1.9 % Diluted earnings per share   $ 0.23       $ 0.34       $ 0.79       $ 0.74   One-time charges, after tax, per diluted share   $ 0.05       $ 0.02       $ 0.05       $ 0.12          

Third Quarter 2010 Financial Highlights:

• Consolidated sales grew 14% to a record $862.7 million in U.S. dollars. On a constant currency basis and excluding WStore, sales grew 11%.
• Business to business channel sales grew 24% to $435.2 million in U.S. dollars. On a constant currency basis and excluding WStore, sales grew 18%.
• Consumer channel sales increased 6% to $427.5 million in U.S. dollars. On a constant currency basis and excluding WStore, sales grew 5%.
• “Same store” business to business channel sales grew 18%, while same store consumer channel sales grew 4%.
• One-time charges were $2.9 million, or approximately $0.05 per diluted share after tax, for costs related to the integration of the WStore acquisition.
• Diluted earnings per share (EPS) were $0.23.

Nine Months 2010 Financial Highlights:

• Consolidated sales grew 16% to a record $2.6 billion in U.S. dollars. On a constant currency basis and excluding WStore results, sales grew 10%.
• Business to business channel sales grew 32% to $1.3 billion in U.S. dollars. On a constant currency basis and excluding WStore, sales grew 19%.
• Consumer channel sales grew 3% to $1.3 billion in U.S. dollars. On a constant currency basis and excluding WStore, sales increased 2%.
• One-time charges were $3.2 million or approximately $0.05 per diluted share after tax, for costs related to the integration of the WStore acquisition.
• Diluted EPS was $0.79.

Richard Leeds, Chairman and Chief Executive Officer said, “During the third quarter, we experienced strong top-line results with consolidated revenue up 14% from the prior year, benefiting once again from solid performances in our business-to-business technology and industrial operations. Additionally, we saw some improvement within the consumer channel, with sales increasing 6% from the prior year. However, the consumer environment and competitive landscape is still challenging and both gross and operating margins remain under pressure. Our consolidated gross margin decrease resulted from a combination of the continued effect of discounted freight; competitive consumer pricing which was not offset by sufficient vendor funding; and start up costs of $1.4 million for our new Georgia facility. Our operating margin was impacted by $2.9 million of one-time charges associated with the WStore integration. We remain focused on improving our bottom line performance, as we look to control costs and increase the efficiency of our operations.”

Gilbert Fiorentino, Chief Executive of Systemax’s Technology Products Group said, “Systemax’s technology products business had solid top-line results this quarter, with sales increasing 13% from the prior year and growth in each product category. In Europe, we are poised to capitalize on the WStore acquisition as we complete its integration by the end of the year in France. We also saw strong growth in our business to business channels in the rest of Europe as well as in North America. In our consumer channels, which are primarily in North America, we are encouraged by the initial results of our co-branding initiative and have already begun to see increased traffic as a result of this effort. Additionally, the opening of our new Georgia facility, which includes a distribution center, call center and retail store, will allow us to further improve our logistical capabilities and will be integral to profitably growing our revenues in the future.”

 

Supplemental Channel Sales Summary1

(in millions) Channel  

Quarter EndedSeptember 30,

 

Nine Months EndedSeptember 30,

  2010   2009   2010   2009 Consumer1,2   $ 427.5   $ 404.4   $ 1,285.9   $ 1,246.7 Business to business1,3   $ 435.2   $ 349.5   $ 1,297.9   $ 981.0 Consolidated Sales   $ 862.7   $ 753.9   $ 2,583.8   $ 2,227.7

1Certain prior year amounts have been reclassified to conform to current year presentation

2Includes sales from retail stores, consumer websites, inbound call centers and television shopping

3Includes sales from managed business relationships, including outbound call centers and extranets, and the entire Industrial Products and Corporate segments

 

Supplemental “Same Store” Channel Growth1 – Q3 2010 vs Q3 2009

Channel   Change Consumer   4% Business to business   18% Consolidated sales   10%

1Comprised of revenue at retail stores, websites and call centers operating for at least 14 full months as of the beginning of the prior comparison 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 EndedSeptember 30,

 

Nine Months EndedSeptember 30,

  2010  

20091

  2010  

20091

Computers   $ 221.9   $ 187.9     $ 650.8   $ 526.8   Consumer electronics   $ 189.0   $ 170.3     $ 573.7   $ 525.6   Computer components   $ 132.2   $ 129.0     $ 402.6   $ 391.2   Computer accessories & software   $ 237.9   $ 202.9     $ 719.2   $ 597.8   Industrial products   $ 67.8   $ 52.0     $ 184.6   $ 146.5   Other   $ 13.9   $ 11.8     $ 52.9   $ 39.8   Consolidated sales   $ 862.7   $ 753.9     $ 2,583.8   $ 2,227.7  

1Certain prior year amounts have been reclassified to conform to current year presentation

  Supplemental Business Unit Sales Summary (in millions) Business Unit  

Quarter EndedSeptember 30,

 

Nine Months EndedSeptember 30,

    2010     2009     2010     2009 Technology Products   $ 794.2   $ 701.4   $ 2,397.4   $ 2,079.2 Industrial Products   $ 67.8   $ 52.0   $ 184.6   $ 146.5 Corporate and Other   $ 0.7   $ 0.5   $ 1.8   $ 2.0 Consolidated sales   $ 862.7   $ 753.9   $ 2,583.8   $ 2,227.7

Working capital as of September 30, 2010 was $279.5 million, including cash and cash equivalents of $30.4 million. As of September 30, 2010, the Company had availability under its credit facility of approximately $87.7 million and total cash and available liquidity of approximately $118 million. Total short and long term debt totaled approximately $32.4 million at September 30, 2010, an increase of approximately $18.6 million from the previous quarter, as the Company made investments for equipping and stocking the new Georgia facility. The Company’s effective tax rate for the first nine months of 2010 was 37.3% compared to 36.3% last year. Included in the 2010 rate is a tax credit of approximately $0.5 million. Excluding this credit the effective tax rate for 2010 would have been 38.3%. Included in 2009 was a reversal of tax reserves of approximately $1.0 million. Excluding these reserve reversals, the Company’s effective tax rate in 2009 would have been 38.7%.

On October 27, 2010 the Company and certain subsidiaries entered into an amended and restated credit agreement with a syndicate of leading banks. The credit agreement provides for a five-year revolving credit facility of $125 million, with the opportunity to increase to $200 million, subject to terms and conditions. The agreement is secured, with certain limited exclusions, by the assets of the borrowers and allows for borrowings based on amounts of qualifying assets, principally accounts receivable and inventories.

Earnings Conference Call Details

Systemax Inc. will host a teleconference to discuss its third quarter 2010 results today, November 9, 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 22320424 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 November 16, 2010. It can be accessed by dialing 800-642-1687 (U.S. callers) or 706-645-9291 (Int’l callers), passcode 22320424. 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 Nine Months Ended September 30* September 30* 2010 2009 2010 2009 Net sales $ 862,705 $ 753,880 $ 2,583,817 $ 2,227,747 Cost of sales   746,013     641,117     2,225,662     1,900,380   Gross profit 116,692 112,763 358,155 327,367 Gross margin 13.5 % 15.0 % 13.9 % 14.7 % Selling, general and administrative expenses 101,841 92,396 306,601 277,045 Reorganization and other charges   2,855     998     3,198     7,264   Operating income 11,996 19,369 48,356 43,058 Operating margin   1.4 %   2.6 %   1.9 %   1.9 % Interest and other (income) expense, net   (1,750 )   (952 )   795     (589 ) Income before income taxes 13,746 20,321 47,561 43,647 Provision for income taxes 5,124 7,723 17,738 15,860 Effective tax rate   37.3 %   38.0 %   37.3 %   36.3 % Net income $ 8,622   $ 12,598   $ 29,823   $ 27,787   Net margin 1.0 % 1.7 % 1.2 % 1.3 %   Net income per common share: Basic $ 0.23 $ 0.34 $ 0.81 $ 0.76 Diluted $ 0.23 $ 0.34 $ 0.79 $ 0.74   Weighted average common and

common equivalent shares:

Basic 37,052 36,703 36,935 36,669 Diluted 37,586 37,319 37,577 37,310  

SYSTEMAX INC.

  Condensed Consolidated Balance Sheets (In thousands)   (Unaudited)

September 30*

 

December 31

2010 2009 Current assets: Cash and cash equivalents $ 30,449 $ 58,309 Accounts receivable, net 242,803 241,860 Inventories 429,365 365,725 Prepaid expenses and other current assets   26,757   26,692 Total current assets 729,374 692,586 Property, plant and equipment, net 70,650 65,598 Goodwill, intangibles and other assets   58,320   58,717 Total assets $ 858,344 $ 816,901

 

Current liabilities: Short-term debt $ 31,348 $ 15,197 Accounts payable and accrued expenses   418,485   427,307 Total current liabilities 449,833 442,504 Long-term debt 1,073 1,194 Other liabilities 11,071 8,518 Shareholders’ equity   396,367   364,685 Total liabilities and shareholders’ equity $ 858,344 $ 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 nine month period and quarter ended on October 2, 2010. The third quarters of both 2010 and 2009 included 13 weeks and the nine month periods both included 39 weeks.