CompUSA 2012 Annual Report Download - page 28

The Technology Products net sales increase in 2011 compared to 2010 is attributable to the effects of currency movements and improved
business to business sales offset by decreased consumer channel sales. On a constant currency basis, sales declined 1.0% or $33.5 million. This
decline is due to lower sales in certain geographies, primarily North America and certain channels, primarily unassisted web and television
shopping. The Industrial Products segment net sales increase in 2011 compared to 2010 is attributable to more products offered on the
Company’s website and the addition of new sales personnel.
CHANNEL SALES:
The increase in consolidated business to business channel sales was driven by the Industrial Products segment’s additional products offered and
new product categories on the Company’s website and addition of sales personnel. On a constant currency basis, worldwide business to business
channel sales grew 8.0%.
The decline in consolidated consumer-channel sales resulted from softness in television shopping, internet and retail stores in North America.
Consumer-channel sales declines were primarily the result of declines in sales of personal computers and televisions, driven by both volume and
selling price erosion. On a constant currency basis, worldwide consumer channel sales declined 14.8%.
The worldwide business to business channel sales increase in 2011 resulted primarily from the Industrial Products segment’s additional product
lines and the addition of business to business sales personnel in both the Technology Products and Industrial Products segments. On a constant
currency basis, worldwide business to business channel sales grew 9.7% in 2011. The worldwide consumer-channels, defined as revenues from
retail stores, consumer websites, inbound call centers and shopping channels, decline resulted primarily from European and North American
unassisted web and television shopping sales. On a constant currency basis, worldwide consumer channel sales declined 7.4% in 2011.
The Company exited the Software Solutions segment in June 2009. One customer remained being served by the Company until the second
quarter of 2012. The termination of this customer has resulted in all prior period results for this business segment to be classified as
discontinued operations in the second quarter of 2012.
GROSS MARGIN
The consolidated gross margin decrease in 2012 is due to increased promotional freight campaigns and competitive pricing pressures within our
North American Technology business offset by changes in the segment and channel mix, with Industrial Products sales, which are typically
higher margin than Technology Products, contributing a larger percentage to gross profit dollars. Gross margin is dependent on variables such
as product mix, vendor price protection and other sales incentives, competition, pricing strategy, cooperative advertising funds required to be
classified as a reduction to cost of sales, freight discounting and other variables, any or all of which may result in fluctuations in gross margin .
The consolidated gross margin increase in 2011 was due to changes in the segment and channel mix, with Industrial Products sales, which are
typically higher margin than Technology Products, contributing a larger percentage to gross profit dollars. Modest improvements in our freight
margin in Technology Products contributed to the improved margin from our ongoing freight and logistics initiatives.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The selling, general and administrative expenses increase in 2012 primarily resulted from the increased Industrial Products sales volume and
increases in facility and other operating costs related to the Industrial Products segment compared to 2011. Significant expense increases include
approximately $4.5 million of increased payroll and related costs due to additional contract labor expenses, approximately $2.3 million in
expenses related to ongoing sales tax and other regulatory audits in our North American Technology business; additional rent and related costs of
approximately $1.4 million due to the opening of a new distribution center in the Industrial Products segment and new sales and administrative
offices in the United Kingdom, approximately $6.9 million of reduced vendor co-operative funding partially offset by savings in catalog and
store advertising costs, and increased internet advertising of $11.4 million. The Company incurred approximately $0.6 million of additional
depreciation and amortization compared to 2011 due to the addition of our Industrial Products segment distribution center and extensive data
storage upgrades and fabrication materials acquired in that segment.
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