CDW Shines in a Gloomy April

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The stormy weather that overshadowed much of the stock market this month did have a few occasional patches of sunshine. Although many direct marketing stocks lost half of their value or more during the volatile period, some, including CDW Computer Centers Inc., actually soared in the opposite direction.


The direct marketer saw its stock close at $97.50 on Tuesday, up about 45 percent from its March 28 closing price of $67.3125. The stock was gaining further ground, trading at about $103 per share and headed for a new 52-week high.


Analysts attributed the gain to a strong first quarter and the apparent durability of the company's business model.


CDW, Vernon Hills, IL, on Monday posted stellar earnings for its first period, tallying profits of $35.29 million, or 79 cents per diluted share, up about 79 percent over profits of $19.7 million, or 45 cents per diluted share, in the first quarter of a year ago. Net sales were $864 million for the recent period, which ended March 31, up about 60 percent over net sales of $539.4 million in last year's first quarter.


Analysts had expected the company to report earnings of about 65 cents per share.


"The numbers were not just good; I would say they were beyond anyone's expectations," said David Manthey, an analyst at Robert W. Baird & Co., Milwaukee.


Although CDW has increasingly been positioning itself as an Internet-savvy company and a business-to-business marketer, it has managed to avoid being placed by investors in the same boat as other BTB Internet players whose stocks have been hammered recently.


Manthey attributes that to the company's hybrid business model, which leverages the company's 820-member staff of dedicated telephone sales agents, catalogs and the Internet. The company refers to its strategy as a "clicks-and-people" approach, and it is similar to the business models of other direct resellers like Insight Enterprises Inc. and PC Connection Inc.


PC Connection also reported a strong first quarter earlier this month, and Insight Enterprises was expected to report similarly robust results, Manthey said. Insight was scheduled to report earnings late yesterday. Its stock, however, rose by almost 26 percent to close at $38.50 on Tuesday.


"What that tells you is that this business model... is proving to be a very powerful one," Manthey said. "[CDW] clearly is taking market share away from other competitors that don't have all the attributes of this business model."


Although some online-only technology resellers might offer prices as low or lower than CDW, he said, they probably don't have the high level of service that CDW has cultivated in its sales agent system during nearly two decades of operation as a traditional direct marketing reseller.


Web-only computer retailers like Cyberian Outpost and Buy.com have been hammered by the stock market recently.


Unlike those companies, however, CDW tallies only a small -- but growing -- fraction of its sales through the Web. During the first quarter, it reported about $72 million in direct Web sales, or less than 10 percent of its total sales for the quarter. Web sales increased 155 percent over the prior-year first-quarter total, and 35 percent over the fourth quarter of last year.


The company attributed some of the Web growth to an aggressive marketing strategy supporting its CDW@work service, a customized Web-based purchasing solution for small businesses.


Meanwhile, the company also said that its founder and chairman, Michael P. Krasney, would step aside as chief executive officer but would remain chairman. A search is under way for a replacement. Gregory Zeman, president of the company, will become vice chairman.
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