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Micro Warehouse Inc. (NASDAQ: MWHS)
535 Connecticut Avenue Norwalk 06854
203-899-4000
President and CEO: Peter Godfrey
Revenues (FYE December 31, 1998): $2.2 billion
Net Income (FYE December 31, 1998): $30.2 million
Market Capitalization: $443.0 million
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Business New Haven
10/4/1999
By: BNH
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Quothe the prophet: "Less is more." It may be that Norwalk's Micro Warehouse Inc. has been learning to live by those guiding words.
In recent years the company expanded by acquiring businesses in Canada, Finland and Australia as well as the acquisition of Inmac Corp. and USA Flex in 1996 and Online Interactive Inc. the following year.
By 1997 the company had a headquarters for Europe located in England, along with a Dutch and German subsidiary and operations in Norway, Finland and Denmark. Since 1995 the company had also gone online with its Warehouse.com and in succeeding years added Webauction.com and then, earlier this year, Computersbynet.com.
But aggressive expansion brought its own set of problems. The sales force proved ineffective, SG&A (selling, general and administrative) expenses were high and biting into margins and international operations needed to be scrutinized. Thus in 1998 the company found it necessary to simplify and thus directed efforts to accomplish five major objectives: improve profitability, redirect the sales force, reduce SG&A, expand Internet business and improve profitability of European operations.
As a first step, sales operations were re-engineered, resulting in a reduction of about 230 positions and the hiring of a new executive vice president of sales. The company also acquired Discovery Training & Development, LLC to breathe new life into the sales organization. As a result the company commenced new sales training programs, revised guidelines for sales performance and also revised compensation programs. Then last winter the company embarked on a recruiting effort that resulted in about 130 new sales personnel.
The company embarked on an endeavor to reduce SG&A by improving asset management including inventory and accounts payable, decreasing advertising costs and implementing improved technology. The company looked to MCI for suggestions on improving the effectiveness and cost of the company's call centers. In an effort to further streamline and control costs, the company converted its financial systems to PeopleSoft software. As a result of these efforts SG&A for the 1998 year was $293 million, compared to $306 million the year before.
To further improve operating efficiencies and cost reduction, the company will begin this year to use its new warehouse and distribution center in Wilmington, O. With its close proximity to the hub of Airborne Express, the company expects to facilitate its overnight mailing of orders and reduce distribution costs.
In 1998, Micro Warehouse closed its UK-based European headquarters and also sold its Macintosh-dependent Scandinavian businesses located in Denmark, Finland and Norway and discontinued Macintosh-based operations in Japan and Australia. It endeavored to improve communications between its domestic and European operations and took a hard look at its German operations and French subsidiary, which are growing and profitable. The company's Dutch, German and UK subsidiaries have been moved to new, upgraded locations. For the 1998 year, 28 percent of sales were generated by international operations.
Following its formation earlier this year of a new Internet subsidiary, Savebynet.com Inc., Micro Warehouse announced in July that it will redirect business from its Computersbynet.com and Webauction.com and combine them with the company's main Web site, Warehouse.com. The company reported that for the month of June its Web sites received 86,000 visitors per day and generated sales of $142.1 million for the first six months of 1999.
The company's total net sales for the 1998 fiscal year was reported at $2.2 billion, compared to $2.1 billion for the 1997 fiscal year. Revenues were derived from Internet sales via the company's Web e-commerce sites, telemarketing efforts and through sales catalogues for Micro Warehouse, MacWarehouse, Data Comm Warehouse and Inmac. The company offers more than 30,000 products for microcomputers, including hardware and software and related supplies and products. Brands carried include Apple, Compaq, Hewlett-Packard and IBM, among others. Sales for the first six months of 1999 were $1.2 billion, compared to $1.1 billion for the comparable 1998 period.
The company's sales are primarily concentrated in that of Wintel (IBM PC-compatible) computers and other related products accounting for 66 percent of sales, with Macintosh brand computers and related products accounting for 34 percent of sales. Of total sales, about 71 percent are in hardware, 16 percent software and the remaining 13 percent for related products and supplies.
Net income for the 1998 year increased to $30.2 million (85 cents per diluted share) compared to a net loss of $36.7 million ($1.06 per diluted share) for 1997. However, the 1997 bottom line was impacted by more than $67 million in write-offs and restructuring costs. For the first six months of 1999, gross profit and net income both increased to $184.1 million and $24.3 million (67 cents per diluted share), respectively, compared to $172.6 million and $4.7 million (14 cents per diluted share), respectively, for the comparable 1998 period.
Although Micro Warehouse has restructured and improved its operating performance, it is still dependent on two main platforms for its sales: Wintel and Macintosh. Also, some manufacturers have begun to limit authorized distributors and are reducing incentive programs. Some are also expanding their own sales efforts, thus reducing the need for outside distributors. Currently, analysts report Micro Warehouse a moderate buy, and their consensus for earnings per share estimates for 1999 come in at $1.35 and for the year 2000 at $1.61.
As with technology stocks in general and Internet stocks in particular, there can be wide swings in the stock price. Micro Warehouse is not immune from such volatility. The 52-week low and high were 11 1/4 and 47, respectively. The stock closed September 17 at 12 3/8.
BUSINESS WIRE
Drawn & Quartered By Dime
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People's To Buy Beardsley, Brown & Bassett
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Office Max Signs On with GE Unit
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Shareholders OK Sale of Connecticut Energy
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Stock Repurchase Cancelled by Ameritech
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NU Dividend To Resume
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UTC Sells Notes & Bonds
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Class Action Suit Against Aquarion
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GE Capital Files Self Registration
WASHINGTON, D.C. - General Electric Capital Corp., a unit of General Electric Co. (NYSE: GE) filed a self registration with the Securities & Exchange Commission for the sale of preferred stock, debt securities and debt warrants. Proceeds of the offerings will be incorporated into the general fund and used to finance operations.
Tyco Takes Equity Interest In Worldwide Fiber
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Q1 Results for Alpine Group
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