Merisel Q2
|
Merisel Q2
|
|
(FOOL CONFERENCE CALL SYNOPSIS)* By Dale Wettlaufer (MF Raleigh)
Merisel, Inc. BUFFALO, N.Y., August 14, 1996/FOOLWIRE/ --- Merisel, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MSEL)") else Response.Write("(NASDAQ:MSEL)") end if %> announced Monday its second quarter financial results for the period ended June 30, 1996. Sales for the quarter increased 4.5 percent to $1.44 billion, from $1.38 billion in the second quarter of 1995. Merisel posted a net loss of $11.4 million, or $0.38 per share, for the quarter, which included a $2.2 million
The company reported a $0.07 per share charge taken in connection with Merisel's ongoing supplier account reconciliation process that began late in the first quarter. In the second quarter of 1995, Merisel lost $4.6 million, or $0.16 per share, which included a $4.3 million pre-tax restructuring charge.
Sales for the six months ended June 30, 1996 increased 5 percent to $3.0 billion, from $2.8 billion for the same period in 1995. The net loss for the period was $25.0 million ($0.83 per share), which included $6.7 million ($0.22 per share) of fees and expenses associated with amending Merisel's financing agreements and costs incurred to prepare the Company's 1996 business plan and begin improving certain business processes, including the supplier account reconciliation process, and $4.4 million in expenses ($0.15 per share) related to supplier account reconciliation adjustments. Merisel's net loss for the first six months of 1995 was $6.4 million. The amount planned for supplier account reconciliation costs is $7 million for the entire fiscal year. Year to date charges for this plan amount to $4.4 million ($0.22 per share) and included $9.3 million (pre-tax) in restructuring charges.
"Our second quarter loss was in line with what we expected based on our 1996 business plan," said Dwight A. Steffensen, Merisel's chairman and chief executive officer. "Our business plan emphasizes maximizing cash flow over profitability for the remainder of 1996. We continue working with Merrill Lynch to explore our strategic options including sales of significant assets around the world and our financial results going forward will depend on those efforts."
Merisel's gross profit and operating expenses as a percentage of sales for the quarter ended June 30, 1996 were 5.5 percent and 5.4 percent, respectively. For the same period in 1995, gross profit andoperating expenses as a percentage of sales were 6.2 percent and 5.4 percent, respectively. Depreciation/amortization for the quarter was approximately $5.4 million and cap. ex. was approximately $1.4 million. Headcount was unchanged from Q1 at 3,235 people and increased from 3,043 in Q2 1995.
Topline Trends
US sales grew 11%, Canada grew 3%, Europe grew 7% (15%+ if adjusted for foreign currency fluctuations), and Latin-American and Mexican subsidiaries grew 53%. FAB grew 7%. US, without FAB, accounted for 48% of sales, international, 33%. FAB equalled 19%; Canada, 9%; Europe, 18.5%; rest-of-world, 5.5%. As a percentage of sales, the group of IBM/Apple/H-P/Compaq/DEC accounted for 41%. Gross margin without FAB was 5.85% and operating expense percentage for Q2 was 5.94%. Software/hardware breakdown was 20%/80%. Without FAB, this breakdown was 24%/76%.
The company has experienced growth in the Value Added Reseller area--in Q2, VAR sales were 21%, up from 19% in Q1. In Q2, Sun sales grew 52% and IBM grew 29%. The company reported a good quarter for sales of IBM equipment. Europe continues to show operating income improvement. However, the German economy continues to confound computer sellers. Canadian sales and marketing areas have been restructured to a more customer-segmented model. Latin-America and Mexico posted operating profits in the quarter. While sales growth continues to slow at Computerland, profit management has gone according to plan.
Asset Management
"Our inventory management continues to improve." Inventory ended the quarter at $399 million. Inventory turns increased to 13.6 from 13.2 last quarter and 10.3 in Q2 1995. A/R DSO [accounts/receivable days-sales-outstanding] improved from 41.7 days in Q1 to 38.7 days in Q2. Their three-part A/R securitization stands at $250.8 million. $138 million is outstanding in revolving debt while cash on hand is $36 million.
The company has terminated talks with a prospective buyer of virtually the entire company. Merisel continues to entertain discussions with various parties in selling off certain geographic segments of their business. "We need to sell significant assets...to deal with the debt structure." The company is working on upping gross margins as a key to improving the operating profits and in surviving in a highly competitive, cost-driven marketplace. The company also is striving to keep up good vendor relations as they continue with growth in strategic markets and dump the sub-optimal business units.
Q&A
The company continues to drive toward its plan to become profitable by Q4 though that plan is contingent upon the accomplishment of certain key strategies such as the sale of underperforming business units. The company does need to restructure debt--the sale of business units will not entirely cover debt current in FY 1997. A/R sales are not out of the question. The company has generated cash in this year and is proceeding according to earlier-set goals on cash-flow.
Sales in consumer products are below historical trends as the company has cut back somewhat in this area. The company is looking at this market very carefully in deciding the best strategic uses of its cash.
The company stated that its vendor relationships were good or 'incredible for our growth.' They also detailed the drop in A/P as being part of their strategy to carry less inventory.
Total debt, including A/R securitization, is $638.6 million. Shareholder's equity is $125 million. Net tangible book value would back out about $91 million in goodwill on the balance sheet.
Backing out the effect of business which are likely to be sold, there are good growth areas to be found in the company's topline, the VAR and Sun businesses being ones cited by the CEO.
To directly address a question as to the parts of Merisel which are most vital and least likely to be sold off, the CEO pointed to the US division and US-related businesses as keepers and the European businesses as discards.
A/R securitization expense was about $3.9 million.
A/P was $425 million; A/R Net, $363 million, and there is no headroom on the revolver. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
|
|
Copyright 1996, The Motley Fool |