Net income at Advanced Marketing Services rose to $3.1 million from $3.0 million in the first quarter ended June 30, 2001, despite a 1% decline in revenues to $147 million. AMS president Michael Nicita said the results in the period were a "testament" to its strategy of expanding into higher margin businesses such as publishing and international distribution. The diversification program enabled AMS "to deliver profit growth in a period of reduced sales," Nicita said.

The decline in U.S. revenues was attributed to the absence of $13 million in sales—9% of AMS's first quarter revenues in fiscal 2001—from Harry Potter and the Goblet of Fire and The Indwelling. Results were also hurt by a jump in returns from 18% in last year's first quarter to 23%. Nicita said that the poor performance of the bestseller category, which usually accounts for 20% to 25% of quarterly sales, was a major factor in the increase in returns. Not only was there "weak representation" in the bestsellers category in the quarter, the sales of books by bestselling authors that were available in the period were down by 20% to 30% from their historical standards, Nicita explained, citing books by such authors as John Grisham and Danielle Steel. Nicita said he is looking forward to a strong fourth quarter in the bestseller segment, when 14 titles with print runs of more than one million are planned.

Nicita told analysts AMS remains committed to expanding its distribution and international businesses and indicated that any future acquisitions in the fiscal year will be done to accelerate its growth in the distribution area. Nicita said he sees AMS's distribution business evolving into an operation with sales in the "hundreds of millions."

Fiscal 2001Review

International sales at AMS rose 23% in the fiscal year ended March 31, 2001, to $51.5 million, and accounted for 7.2% of the company's total revenues of $713.6 million in the year. In fiscal 2000, international sales represented 6.6% of AMS's total revenues. Sales in the U.K. rose 15.6%, to $43.6 million, while sales in Mexico increased 17.9%, to $4.9 million. In its 10-k filing with the Securities and Exchange Commission, AMS said its Mexican subsidiary had achieved its second consecutive year of profitability and the company noted that it believes it can sustain "a viable operation in Mexico." Through its March 2000 purchase of Bookwise, AMS recorded its first sales in Australia in fiscal 2001, reporting revenues of $3 million.

AMS's two largest customers in fiscal 2001 were Costco and Sam's Club, which each accounted for 38% ($271 million) of the company's revenues last year. To lessen its dependence on the warehouse clubs, AMS is increasing its efforts to supply product to bookstore chains, particularly Borders, and has taken on fulfillment for some Internet retailers.

During fiscal 2001, AMS acquired product from about 400 publishers, led by Random House, which accounted for 18% ($110.5 million) of the distributor's total purchases. Other publishers that accounted for more than 10% of AMS's purchases were Penguin Putnam (16%; $98 million); HarperCollins (13%; $80 million) and Simon & Schuster (10%; $61 million).