Essendant Inc., a major distributor of business and industrial supplies to some 29,000 resellers, reported mixed results in the second quarter for its e-commerce channel.
“We are demonstrating strong growth with customers” that sell online, CEO Ric Phillips said during a recent conference call with stock analysts for the second quarter ended June 30. But he said a downturn in sales primarily to one major online reseller caused e-commerce channel sales to decline in most product categories, the exception being online sales of cut-sheet paper products. Phillips added that Essendant “is working closely with that customer to return to growth with them,” but didn’t identify the customer.
In addition, Phillips said Essendant invested $19 million during the quarter in its independent reseller channel, including “digital capabilities and content, catalog, logistic support, rebate programs, etc.,” according to a transcript of the call from Seeking Alpha. Essendant has long provided assistance to its resellers to develop and sell through their own B2B e-commerce sites.
Phillips added that Essendant also increased sales to independent resellers outside of the e-commerce channel, while seeing drops across most product categories in sales to large national resellers.
In recent days, Essendant has provided updates on its pending merger with the S.P. Richards office supplies unit of diversified distributor General Parts Co., as well as the unrelated and unsolicited bid by Staples Inc. to acquire Essendant.
Yesterday, Essendant said it had set Oct. 5 as the date when its stockholders will vote on whether to issue new shares required to proceed with the S.P. Richards merger; the merger itself has been approved by the boards of both companies.
Regarding the bid by Staples to acquire Essendant, the two companies recently entered into a “confidentiality” agreement to discuss terms of an acquisition, according to a filing this week with the U.S. Securities and Exchange Commission. Staples, which is owned by investment firm Sycamore Partners, has offered to pay $11.50 per share for Essendant and contends that Essendant would be a stronger company under Staples than through a merger with S.P. Richards.
Both the pending merger between Essendant and S.P. Richards and the Staples acquisition offer, however, are subject to anti-trust review and approval by the Federal Trade Commission.
In a 10Q filing with the SEC this week, Essendant broke out revenue for its seven main product categories:
JanSan (janitorial-sanitation): Sales fell $1.8 million to Essendant’s e-commerce channel of online resellers and $12 million to its national reseller channel, contributing to a 1.0% year-over-year decline to $346.3 million. In contrast, sales to independent resellers increased $10.4 million.
Technology products: Sales (mostly ink and toner products) dipped $0.6 million to online resellers while dropping $16.0 million to national resellers, as sales to independent resellers increased $5.7 million. Overall, the category’s sales fell 3.5% to $298.8 million.
Office supplies: Sales fell $2.7 million to online resellers and $8.0 million to national resellers, as sales to independent resellers inched up $0.6 million. The category’s total sales decreased 5.4% to $176.6 million.
Cut-sheet paper: Sales increased $1.9 million to online resellers and $5.0 million to independent resellers, while sales to national resellers dipped $0.6 million. The category’s total sales increased 5.8% to $116.0 million.
Office furniture: Sales dropped $0.3 million to online resellers and $7.9 million to national resellers, as sales to independent resellers increased $1.2 million. Overall, the category’s sales fell 9.9% to $63.0 million.
Industrial supplies: Total category sales increased 5.8% to $163.0 million, as sales grew $10.4 million to national resellers, $$5.2 to Essendant’s industrial channel and $1.3 million to its international channel.
Automotive products: Total category sales increased 4.0% to $85.39 million, driven primarily by sales to Essendant’s auto parts channel.
(Essendant doesn’t report sales to online resellers in its industrial supplies and automotive parts categories.)
For the second quarter ended June 30, Essendant also reported:
- Net sales of $1.254 billion, down 0.6% from $1.261 billion from a year earlier;
- Gross profit of $173.21 million, down 2.4% from $177.56 million;
- A net loss of $97,000, compared to net income of $5.1 million; it attributed the loss mainly to restructuring charges.
For the six months ended June 30, Essendant reported:
- Net sales of $2.494 billion, down 1.4% from $2.530 billion a year earlier;
- Gross profit of $294.38 million, down 19.0% from $363.23 million;
- A net loss of $51.54 million, compared to a net loss of $183.35 million. The larger loss of a year ago was largely related to a “goodwill impairment” accounting charge related to softened demand in the industries Essendant serves.
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