Solid Gains from AMS
Jim Milliot -- 1/29/01

In a quarter marked by disappointing results, Advanced Marketing Services bucked that trend by reporting a sales increase of 10% to $246.1 million for the third quarter ended December 30, 2000, while net income climbed 24% to $11.4 million. The company attributed the revenue gain to increased business with Borders Group, significantly higher sales from the international market and solid results from its core warehouse club customers. As a result of the good quarter, AMS raised its full-year earnings per share estimate to between $1.55 and $1.58 from earlier estimates of between $1.47 and $1.52.

Company president Michael Nicita said the results "proved the importance of our acquisitions and diversification" efforts. Of particular note in the quarter, sales of AMS's Mexican subsidiary rose by about 100%, while the purchase of Uncle John's Bathroom Readermade a contribution to sales. Moreover, improved efficiencies helped earnings increase at a faster rate than sales in the quarter despite distribution and administrative expenses as a percentage of sales rising to 8.1% from 7.2% in the same quarter last year. The increase was due to higher spending associated with building the company's infrastructure, plus a $900,000 increase in reserves due to the bankruptcy filing of Bradlees.

While AMS's wholesale operations account for 93% of the company's total revenues, AMS's fastest growing area has been its publishing program that represents 5% of sales. Nicita noted that AMS has increased its development of internal products and has expanded the distribution of its line well beyond warehouse clubs to include a wide range of booksellers. Nicita also sees growth opportunities for AMS's distribution business, which is now mainly concentrated outside of the U.S. Its distribution business adds about 2% to the company's revenues.

AMS spent $5.8 million on acquisitions in the first nine months of fiscal 2001, and Nicita said the company will continue to look for acquisitions that complement its core businesses. The wholesaler is also aggressively growing its international business. AMS plans to open a sales office in Singapore in about a month to support its export efforts to Japan, South Korea and Taiwan. Raincoast Books, in which AMS has a 25% stake, plans to open a "modest" sized distribution center in Toronto this spring.

For the first nine months of the year, net income rose 23.3%, to $18.1 million, on a 14.4% sales gain to $571.5 million.