Digital commerce is both an advantage and a weak spot for Essendant Inc., a multibillion-dollar distributor of office, automotive, technology and industrial products to thousands of other distributors and resellers.
The company reported a 4.5% year-over-year drop in net sales for the fourth quarter ended Dec. 31, to just over $1 billion, resulting in a net loss for the quarter of $1.55 million. For the year, revenue fell 6.2% to $5.04 billion, and the company posted a net loss of $266.98 million largely because of a “goodwill impairment” accounting charge related to softened demand in the industries it serves.
But president and CEO Ric Phillips noted several improvements underway, including a restructuring program expected to cut more than $25 million in costs this year and reach savings of $50 million by 2020. He also cited Essendant’s expertise in digital commerce.
While Essendant’s total net sales fell 6.2% for the year, its e-commerce sales inched up 0.5%, to $755.599 million, accounting for 15% of net sales in 2017, up from 14% the prior year.
“I want to reiterate the long-term potential I see in this business,” Phillips said on a conference call with stock analysts last week, according to a transcript from Seeking Alpha. “We are a leading national distributor across a variety of product categories, serving a diverse group of reseller customers. We provide access to a broad product portfolio, nationwide delivery and deep sales, marketing and digital expertise.”
Essendant is known for helping many of its 29,000 reseller customers get up and running with their own e-commerce portals to sell to their own business customers. It also operates a retail e-commerce business, CPO Commerce, which sells power tools and related products on CPOOutlets.com to consumers and professional mechanics.
But while overall e-commerce sales have inched upward, they also contributed to year-over-year declines in 2017 sales in several of Essendant’s B2B product categories, including:
- Technology products—A $9.9 million drop in e-commerce sales, along with other larger declines in sales to national and independent resellers, resulted in a 9.8% drop in technology sales to $1.218 billion, about 24% of total sales;
- Office products—A $5.5 million drop in e-commerce sales, along with other declines in sales to resellers resulted in a 10.2% decline in office products sales to $749.2 million, about 15% of total sales;
- Office furniture—A $7.1 million drop in e-commerce sales, along with other declines to resellers resulted in a 10.3% drop in furniture sales to $267.4 million, about 5.3% of total sales.
Essendant, No. 105 in the 2018 B2B E-Commerce 300, also noted that sales of janitorial-sanitation products, or JanSan, decreased 8.9% to $1.454 billion, more than a quarter of total sales, but didn’t break out e-commerce figures.
In the annual 10-K financial statement it filed last week, Essendant said it is facing increased competition from e-commerce businesses, including the online branches of bricks-and-mortar wholesale clubs and large retailers. In addition, price transparency driven up by competing online resellers is forcing Essendant to take a harder look at its pricing and profit margins. “This increased competition from e-commerce businesses has put competitive pressure on Essendant,” it said in the filing.
On the plus side, Essendant said e-commerce sales of cut-sheet paper products increased by $3.4 million, contributing to a 3.0% increase in cut-sheet sales to $396.7 million, about 8.0% of total sales. It also said that sales of automotive products increased 2.4% to $312.5 million, about 63.0%of total sales, but didn’t break out e-commerce figures.
The remainder of Essendant’s consolidated net sales were composed of revenue from freight and other operations.
For the fourth quarter ended Dec. 31, Essendant reported:
- Net sales of $1.198 billion, down 4.5% from
$1.254 billion a year earlier;
- Gross profit of $170.87 million, up 3.5% from $165.10 million, resulting in a profit margin of 14.3%, up from 13.2%;
- Net loss of $1.546 million, narrowed from $2.353 million.
For the full year, Essendant reported:
- Net sales of $5.037 billion, down 6.2% from $5.369 billion the prior year;
- Gross profit of $706.054 million, down 7.1% from $759.861 million, resulting in a profit margin of 14.0%, down from 14.2%;
- A net loss of $266.981 million, compared with net income of $63.852 million.
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