Systemax(US:GIC)2021-05-08 17:21Financial Data and Key Metrics Changes - First quarter revenue increased by 10.5% to $251 million, with average daily sales growing almost 9% [6][17] - Gross profit for the quarter was $77.3 million, an increase of approximately 1% from last year, while gross margin decreased by 290 basis points to 30.8% [20][21] - Operating income from continuing operations was $6.6 million, with an operating margin decline of 250 basis points from the previous year [27] - The company maintained a strong liquid balance sheet with a current ratio of 1.5:1 and approximately $36.9 million in cash [28][29] Business Line Data and Key Metrics Changes - Growth was driven by core product lines such as storage and shelving, material handling, HVAC, and outdoor equipment [19][43] - Consumable products related to the pandemic, including PPE and sanitizing supplies, accounted for 5.6% of sales, down from 7.5% in the same period last year [19][44] - Private label offerings increased as a percentage of total sales, contributing positively to gross margins [21] Market Data and Key Metrics Changes - U.S. average daily sales growth was 6.8%, while Canadian average daily sales growth was 38.6% in local currency [17] - E-commerce accounted for more than 56% of total transaction count, up almost 500 basis points from the prior year [18][10] Company Strategy and Development Direction - The company is focused on executing its ACE strategy and making strategic investments to enhance customer experience and drive growth [9][14] - There is an ongoing digital transformation to capitalize on the shift in B2B e-commerce adoption [10] - The company is expanding its line of global industrial branded products, which serves as a significant differentiator in the marketplace [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand environment due to signs of an improving economy, despite disappointment in Q1 profitability results [7][6] - The company anticipates that many drivers of gross margin erosion are temporary and will ease as the year progresses [7][38] - Management expects sequential improvement in gross margins in the second quarter, driven by optimization of logistics and easing freight pressures [24][38] Other Important Information - The company declared a quarterly dividend of $0.16 per share and anticipates continuing regular quarterly dividends in the future [29] - Capital expenditures for the first quarter were $0.9 million, with expectations of total 2021 capital expenditures in the range of $5 million to $7 million [28] Q&A Session Summary Question: Impact of lower gross margin drivers - Management noted that freight margin was a significant negative impact, with costs related to the new logistics provider and elevated LTL costs affecting performance [33][34] Question: Gross margins if one-time items are added back - Management identified a 110 basis point impact from the inventory adjustment, indicating that gross margins would have been higher without this write-down [35] Question: Revenue growth from core non-pandemic merchandise - Management confirmed that core product growth was strong, particularly in storage and shelving, material handling, HVAC, and outdoor supplies, with a decline in PPE sales [42][44] Question: Transition costs to the new logistics provider - Management acknowledged that transitional costs would continue into the second quarter but at a muted level compared to the first quarter [46][47] Question: Current inventory position regarding pandemic-related products - Management stated that the write-down was based on net realizable value and that they took appropriate reserves for inventory [49][50] Question: Tax rate expectations for the rest of the year - Management indicated that the tax rate came in lower than expected due to stock option expense benefits and Canadian business performance, with a long-term model of 25% to 26% [56][57]