PGW Addition Helps Boost Sales and Earnings at AMS

Revenues at Advanced Marketing Services rose 6%, to $756.1 million, and net income increased 11%, to $23.1 million, for the fiscal year ended March 31. Full-year results were given a boost by a strong fourth quarter, in which sales increased 25%, to $177.8 million, and earnings increased 13%, to $3 million. The quarter benefited from two months of results from the newly acquired Publishers Group West. Higher sales to its core warehouse club customers and increased revenues from international operations also contributed to the gains in the year.

A drag on earnings for fiscal '02 was an increase in the company's return rate to 22% from 19% in fiscal 2001. AMS president Michael Nicita said the combination of fewer sales of bestsellers as well as a lack of execution by the company itself led to the higher return rate. Nicita told analysts in a conference call that the company is working with customers and publishers to bring the return rate down. Bestsellers account for roughly 20% of AMS's sales through its warehouse clubs.

Part of the answer to lowering the return rate could come when AMS finishes implementing a new Oracle operating system that the company has been phasing in for several years. The final stage of the implementation is scheduled for June through August. When the implementation is completed, the new system will help AMS manage its supply chain better, make the company "hardware independent" and provide AMS with enough bandwidth to incorporate the different systems used by its domestic and international operations, Nicita said. The majority of AMS's $16.5 million in capital expenditures last year went to system upgrades, and the company has a $10.5-million capital expenditure budget for the current year.

AMS also made some investments in expanding its distribution centers. The company now has 1.6 million square feet of warehouse space and is in a position to take on more business seamlessly, Nicita reported. Some of the space will be devoted to handling the distribution of mass market paperbacks to Borders Group's superstores. AMS, which already distributes paperbacks to Waldenbooks, has been testing distribution to superstores and expects to roll out the service to all outlets this month.

Nicita said he was pleased with the performance of AMS's publishing program, which accounted for 9% of total sales in fiscal '02, compared to 7% in the previous year. AMS added to its publishing portfolio in the year with the acquisition of a 25% stake in the U.K. packager Templar. Among Templar's titles is the Snappies pop-up series, which had been published in the U.S. by Millbrook Press. Distribution is now being done by Silver Dolphin, the children's imprint of AMS's publishing division.

With the addition of PGW and steady growth from its warehouse clubs, Nicita said it's possible AMS could become a $1-billion company in fiscal '03.