Aided by a full quarter's contribution from the recently acquired Publishers Group West, revenues at Advanced Marketing Services rose 31%, to $191.9 million, in the first quarter ended June 30, with PGW contributing $27.8 million in sales. Net income, however, fell 29%, to $2.4 million, significantly below Wall Street estimates. Earlier in the month, AMS executives had advised analysts that the company would not hit their earnings target due to the timing of some shipments to core customers, lower shipments of high margin products and increased infrastructure costs. "We're disappointed net income fell short of estimates, but we're confident we'll hit year-end" targets, company president Michael Nicita told analysts in a conference call.
In addition to sales from PGW, the increase in total revenues was the result of higher shipments to core warehouse club customers plus higher sales from AMS's international operations, with results in the U.K. and Mexico particularly strong. The addition of PGW also brought up AMS's return rate, which was 24% in the first quarter, compared to 23% in the first period of fiscal 2002. Nicita said AMS is in "the early stages" of integrating PGW into its own operations.
A positive development in the first quarter was the rollout of AMS's program to supply all Borders superstores with mass market paperbacks. AMS should be fulfilling all Borders superstores by the end of the fiscal year. Nicita noted that AMS has a "close working relationship" with Borders's paperback buyers, as well as with publishers, and that the three parties confer to determine the quantities of titles going to each Borders location.
Looking ahead to the holiday season, Nicita said AMS expects bestseller sales to be stronger this year than in 2001, when sales were hurt by the events of September 11. Higher bestseller sales would boost AMS revenues but hurt margins because of the lower margins AMS earns from those titles.
