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Systemax bleeds $28m while its shares bounce off the floor

It's all OK – if you exclude currency issues, store closures, shrinking sales...

With the store closure programme Stateside, the axe falling on EMEA boss Pim Dale, and the industry-wide currency crisis, portents of doom hung over Systemax’s Q2 numbers.

And so it has come to pass – the once mighty tech reseller last night reported another quarter of double digit sales declines and widening losses.

Turnover for the three months ended 30 June declined nearly eleven per cent to $740m from $831.1m in the same period a year ago.

To save some face, Systemax highlighted that on a constant currency basis, and excluding the acquisition of SCC’s Dutch arm and P.G.E, plus the 31 retail stores shuttered in the US, sales fell just 2.9 per cent.

At the North America Technology Group, revenue crashed 25.7 per cent to $305.1m, as it pretty much exits consumer tech reselling to concentrate on commercial punters.

The decline highlighted the “challenges we are experiencing during the ongoing realignment of our North America technology business to serve the B2B and public sector marketplaces,” said CEO Richard Leeds.

In EMEA ops – which are also troubled – Technology Group sales slid 8.8 per cent to $256.6m but again, excluding the currency impact, and the acquisition, sales actually grew 0.6 per cent. Reality tells its own tale.

During the quarter, Systemax dismissed local president Pim Dale, the man who was plotting to create the largest tech reseller in the region within five years, but instead made it less relevant.

The company was a slick reselling outfit, but with falling product margins it tried to build a mid-market services operation. The problem Dale faced was that while he was spinning up one new plate, the existing ones started to fall.

Company overlord Leeds said France had another decent outing, posting top and bottom line double digit growth for the sixth quarter in a row. Other areas improved across the region but the UK (its HQ) saw “continued decreased sales.”

Former Insight exec Simon Taylor took the controls last month, and is someone with the experience to turn the ship around. “One of his primary focus areas will be on improving our UK operations,” said Leeds.

The CEO reckons the Share Service Centre in Hungary that was the brainchild of Dale is working through its issues and provides a “sound foundation” for the future. The unit centralised back office functions, customer services and marketing to save costs.

The only real bright spark came from an area of the business that doesn’t sell tech, namely the Industrial Product Group (IPG), where grew sales 27.3 per cent to $180.9m. In constant currency and excluding an acquisition of P.E.G, sales grew ten per cent.

The division sells various products including storage & shelving, workbenches and shop desks, electrical kit and bulbs, and plumbing supplies and fans.

Gross margin at group level went up to 15.1 per cent from 14.8 per cent, and the “key driver” for this, the company said, was the increased mix of higher margin IPG business.

Gross profit fell 9.5 per cent to $111.5m, and sales, general and admin expenses also came in at $111.5m, down 16.0 per cent due to cost savings made in the Shared Service Centre.

Special charges of $28.5m were to cover severance costs and leases for closed facilities, including the retail outlets and a warehouse.

This is all left Systemax nursing an operating loss of $28.5m versus a loss of $5.4m a year ago. After an interest gain and provision for income taxes, the net loss was $28.4m, compared with a net loss of $6.2m in the prior year.

Systemax shares fell to a 52-week low twice in the quarter, indicating the confidence analysts and investors have in the stock. The market’s response to the results last night? Shares hit a 52-week low for the third time, dropping to $6.68.

No financial analysts attended the conference call, which speaks volumes to the relevance that Systemax now has in the tech industry. ®

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