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By | Paul Kunert 2nd November 2012 10:44

Red-soaked Systemax kills Euro jobs and US PC factory

Killing spree also slays CompUSA and Circuit City brands

US giant Systemax is shuttering its PC factory and axing the CompUSA and Circuit City brands. The reseller, which also runs, signalled it will cut its workforce in Europe after ploughing into the red in Q3 2012.

The New York-listed biz delayed reporting its latest financial results on Monday as Hurricane Sandy battered the east coast of the US. The paperwork was filed last night in the aftermath of the devastating "Frankenstorm".

Systemax's sales for the quarter, ended 28 September, came in at $846.3m compared to $900.2m in the same period a year ago, a 5.99 per cent drop.

The business-to-business part of the company continued to be a growth engine, particularly in Europe. B2B revenue was up four per cent year-on-year to $526.8m, but sales from Systemax's consumer unit in North America fell 19 per cent to $319.5m.

CEO Richard Leeds said: "The weakness [in our retail business] is largely driven by industry trends that include soft demand for PCs and a number of consumer electronics products."

A gross profit of $118.97m was almost wiped out by "selling, general and administrative expenses" of $118.91m (SG&A costs were up six per cent year-on-year). Special charges of $2m resulted in an operating loss of $1.93m. In Q3 2011, Systemax made an operating profit of $19.3m.

The special charges included $1.7m in a patent settlement although no further details were given, and $300,000 in legal fees to settle the case with disgraced former exec Gilbert Fiorentino.

The firm pulled valuation allowances of $15.1m out of the bag, and this resulted in a net profit of $13.95m. These allowances were related to deferred tax assets in France.

Systemax blamed the operating loss on the North America technology segment. In response to the decline in fortunes, the firm reviewed the economics of its PC factory in Ohio and decided to press the big red shutdown button. It said it will continue to service and support existing customers.

Halting the PC production lines will cost Systemax between $6m to $8m before tax, a hit that will be recorded in its Q4 results.

The company also evaluated its various brands, and has decided to kill off the CompUSA and Circuit City tags, resulting in a non-cash impairment charge of $34m before tax.

Leeds said his firm had already "harvested significant value" from the brands but could cut costs in advertising and "customer acquisition" if it binned them.

The business will also form a European shared services centre in eastern Europe in 2013.

"This new facility will provide certain administrative and back office services and will help drive operational efficiencies," stated Systemax in an SEC filing.

It didn't talk numbers, but said the one-time "exit, severance and start-up costs in order to implement the shared services centre, as well as other cost reduction initiatives in Europe [will cost] $14m to $16m, pre tax".

This will be recorded in Q4 and in results for the first half of 2013. Systemax expects the changes to reduce its costs by $9m to $11m on a pre-tax basis annually. ®

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