SED International Holdings Reports First Quarter Fiscal Year 2012 Financial Results
“We are confident that the investments we have made in our business, including our new Lehrhoff enterprise, are the right strategy to achieve sustainable growth and profitability. Overall, our business fundamentals remain healthy, as evidenced by our 10% sales growth year-over-year. We are increasing sales of recently added new brands and have added talented professionals to help drive sales of SED’s product lines. Our investment in Lehrhoff also adds higher margin small appliances, housewares and personal care product items to our product mix, as well as provides SED with a Northeast U.S. hub for distribution of all SED products, thereby reducing delivery times and shipping costs to this important geographic region.
“Regarding Lehrhoff, we are making good progress with the integration. We have established relationships with key vendors representing over 50 new brands and 250 new customers. We are making advances with this conversion, generating sales of $0.7 million in September and $2.1 million in October from SED Lehrhoff. We expect our investment in this business will provide solid financial contribution in this fiscal year and meaningful incremental profitability in fiscal 2013.
“SED remains focused on adding new vendors, penetrating new markets and increasing sales of higher margin products across all our business segments. As we further refine our cost structure, we expect to consolidate and reduce our expense base in an effort to achieve $1.0 to $1.2 million in annualized savings. We believe our strategy, along with the enhancements to our business made in the first quarter, will enable us to attain our long-term objectives,” concluded Mr. Elster.
First Quarter Fiscal 2012 Financial Highlights, Year-over-Year Comparisons:
Net sales of $155.8 million, an increase of 10.0% compared to
- Microcomputer product sales were $140.2 million, an increase of 13.4%.
- Consumer electronics product sales were $15.6 million, a decrease of 13.5%.
- Domestic sales, including exports and after eliminations, were $121.4 million, an increase of 13.2%.
- Latin America sales after translation into U.S. dollars were $34.4 million, a decrease of 0.3%.
- First quarter 2012 sales included $0.7 million benefit from Lehrhoff.
- Gross margin of 4.8%, compared with 5.1% in the first quarter of fiscal 2011 and 4.7% in the fourth quarter of fiscal 2011. Gross margin was impacted by the product mix in the U.S., including increased sales of lower margin hard drives, as well as slightly lower margins in the U.S. export business.
- SG&A expenses increased to $7.9 million, compared with $6.4 million. The year-over-year increase included: $0.61 million of Lehrhoff operating SG&A $0.35 million attributed to Argentina severance costs and expenses associated with the relocation of SED’s Atlanta headquarters and distribution facility; and $0.45 million of personnel-related expense increases, such as sales commissions and investment in headcount and key management positions supporting SED’s growth strategy.
- GAAP Operating loss was $1.5 million, compared with operating income of $1.1 million. Non-GAAP adjusted operating loss was $0.17 million. Non-GAAP operating loss excludes $0.37 million of Lehrhoff acquisition-related expenses; $0.65 million of unfavorable foreign currency transaction losses in Latin America; and $0.35 million in severance cost in Argentina, one-time relocation expenses. Excluding Lehrhoff and certain other charges, SED’s non-GAAP operating income was $0.36 million for the first quarter of fiscal 2012.
- GAAP Net loss was $0.83 million, or $0.18 per diluted share, compared with GAAP net income of $0.74 million, or $0.15 per diluted share. Non-GAAP adjusted net loss was $0.46 million, or $0.10 per diluted share.
- In the first quarter of fiscal 2012, the Lehrhoff division generated $0.7 million in sales, gross profit of $0.1 million, and an operating loss of $0.9 million. The operating loss figures include expenses for the relocation of Lehrhoff inventories, as well as acquisition and integration-related expenses.
- Acquired certain assets of ArchBrook Laguna LLC and subsidiary Lehrhoff & Co., Inc. to expand higher margin small appliances business, add a Northeast U.S. distribution center for both Lehrhoff and SED products, and enhance business in other areas of its operations.
- Broadened SED’s vendor scope with the addition of new vendors, brands and products in key line-card categories including: Lenovo PCs, ASUS motherboards, and over 50 small appliances, housewares and personal care products brands.
- Strengthened U.S. sales and marketing efforts with addition of seasoned outside sales representatives, and bolstered purchasing operation with the appointment of industry veteran, Eddie Lageyre, as Senior Vice President, U.S. Purchasing.
- Fortified Latin American team with the appointments of Ronell Rivera to Senior Vice President for Latin America, and Mauricio Arcila to General Manager of SED Colombia.
- Rang the closing bell at the New York Stock Exchange to celebrate SED’s listing on the NYSE Amex.
- Expanded and relocated Atlanta, GA area distribution center and corporate headquarters to meet capacity demands of growing business.
- Repurchased 20,010 shares during the first quarter of fiscal 2012 under its stock repurchase program. The SED Board of Directors has authorized an aggregate dollar amount of more than $1.5 million since the inception of the repurchase plan in August 2009, under which SED had repurchased a total of 481,925 shares at an average cost of $3.79 as of September 30, 2011.
- Cash and equivalents were $4.2 million as of September 2011 compared with $4.7 million in 2010, and borrowings outstanding under SED’s revolving credit lines were $48.5 million as of September 2011 compared with $38.4 million in 2010. The increase in SED’s current borrowing reflects the $4.4 million Lehrhoff purchase.
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