AMS Expects Better Performance in Fiscal '04

In a May 22 conference call with analysts, Advanced Marketing Services president Michael Nicita explained that a major factor in the disappointing results for the year ended March 31 (News, May 26) was the poor performance of bestsellers, which were especially weak in the last two weeks of the fiscal year. High returns, inventory reductions by major customers and shipping inefficiencies at Christmas also contributed to the disappointing year in which net income fell 51%, to $11.2 million. Nicita said he believes fiscal 2003 "was not indicative" of the growth prospect for AMS, adding that he was confident business will grow again in fiscal 2004.

In reviewing fiscal '03, Nicita said AMS was successful in diversifying its revenue base. Costco and Sam's Club represented 59% of total sales, down from 71% in fiscal 2002. The company's third largest domestic customer is now the Borders Group, which, including sales from PGW, accounted for 13% ($118 million) of total revenue. AMS has completed the "ramp-up" of its distribution business with Borders, and in fiscal 2004 will handle fulfillment for all mass market paperbacks at the company's superstores and at Waldenbooks. The international segment was also a bright spot last year with acquisitions helping to boost sales by 24%.

At the start of fiscal '04, May sales through the 21st were not as strong as in April, Nicita told analysts, but he was hoping sales would improve with the release of several new titles. And AMS is expecting big things from the June release of Harry Potter and the Order of the Phoenix. The company sold more than two million copies of Goblet of Fire, and Nicita said AMS expects to sell at least that many copies of Phoenix by the end of the calendar year. Raincoast Books, in which AMS has a minority stake, will be looking to grow the Potter franchise in Canada, Nicita said, noting that the Canadian house's first printing for Phoenix is oversubscribed.

Looking at sales prospects by group for fiscal '04, Nicita said he expects sales from its wholesaling business to range between $775 million and $850 million; PGW sales are forecasted to be between $130 million and $160 million; and international sales are estimated to increase to between $100 million and $120 million.

AMS Sales by Segment, Fiscal 2003
($ in millions)