- Second quarter 2000 net income increased 36 percent year over year to
$122 million
- Quarterly earnings per diluted share increased to $0.37, up 32 percent
over last year and $0.01 above consensus
- Quarterly revenues grew 12 percent to $2.14 billion year over year
- Second quarter gross margin was a record 23.3 percent
- Consumer unit posted revenue growth of 32 percent, unit growth of 39
percent year over year
- Non-PC income was 40 percent of overall income, half of that recurring
SAN DIEGO, July 13 /PRNewswire/ -- Robust year-over-year growth in PC
sales to consumers, coupled with continued strong and increased sales of
PC-related products and services, powered Gateway (NYSE: GTW) to record second
quarter profits of $122 million, or $0.37 per diluted share, a 36 percent
increase in net income over the second quarter of last year.
During the second quarter, Gateway saw strong growth year over year in
three of its four business units, with Gateway Consumer leading the way with
revenue growth of 32 percent and unit growth of 39 percent. Gross margins for
the quarter were a record 23.3 percent, showing the continued success of
Gateway's beyond-the-box business strategy in driving increasingly profitable
sales of bundled hardware and services in an era of declining average unit
prices. Income from hardware and services other than the PC was 40 percent of
overall income in the second quarter, meaning Gateway has reached its
previously stated goal for the fourth quarter a half-year ahead of schedule.
"For the second time in two quarters, we have grown net income at triple
the rate of our revenue growth, meaning we're getting the lion's share of
profitable PC sales," said Jeff Weitzen, Gateway president and chief executive
officer. "As we enter the back half of the year, our biggest selling season,
we're positioned to help our clients reap all the benefits of today's
technology while driving profitable sales that our shareholders will applaud."
Quarterly Sales
In the second quarter of 2000, Gateway sales rose to $2.14 billion, up
12 percent from year ago levels. Net income rose 36 percent year over year
to $122 million. Gateway earned $0.37 per diluted share, compared with
$0.28 per split-adjusted diluted share a year ago, a 32 percent increase.
Gateway shipped 1.2 million units in the second quarter compared with
1 million units a year ago, a 17 percent increase.
Propelled by growth across all sales channels, Gateway's Consumer unit
posted a 32 percent increase in revenues in the second quarter over year-ago
levels, and a 39 percent increase in units. Improved availability of mid-
range microprocessors, motherboards and DRAM allowed Gateway to better meet
demand, as close rates exceeded historical trends.
Gateway continued to grow its Internet service, along with its strategic
partner America Online. By the end of the second quarter, Gateway and AOL had
added a net 250,000 new subscribers.
Gateway also showed strong growth overseas. Gateway's Europe, Middle East
and Africa (EMEA) unit saw revenues grow 21 percent year over year during the
second quarter, marking a further strengthening of Gateway in Europe.
Gateway's Asia-Pacific (AP) unit saw revenues grow by 20 percent in the second
quarter, compared with last year.
Gateway's sales to businesses declined 10% in the second quarter compared
with last year as the company continued to refocus its efforts on sales to
small and medium businesses and government and education institutions, which
are Gateway's core target markets in the business space. On a trend-line
basis, however, Gateway's business-to-business performance showed improvement
over the previous quarter's 19% decline, and the company is targeting flat
growth in the third quarter and positive growth in the fourth.
"We're still not living up to the potential of our brand and our unique
market position in the business-to-business-arena, but we're moving in the
right direction," Weitzen said. "We're redoubling our efforts to build
capability and deliver world-class execution against our beyond-the-box
strategy among our core business markets, and I'm confident we'll see
continued performance improvement in this sector in the quarters ahead."
The Gateway Country(R) stores retail channel added 31 stand-alone
locations during the second quarter, bringing the total to 349 locations
worldwide. In the United States, there were 27 new stores opened during the
quarter, bringing the total to 287 locations. In EMEA, Gateway Country had 27
locations at quarter's end. In AP, Gateway added four stores during the
quarter, bringing the total to 35.
In addition to Gateway Country stores, Gateway had another 409 Gateway
store-within-a-store outlets around the world at the end of the second
quarter. In EMEA alone, Gateway had 230 retail outlets in addition to Gateway
Country stores at quarter's end, an increase of 33 during the quarter. In AP,
Gateway had 87 store-within-a-store outlets in addition to Gateway Country
stores, up 39 from the end of the first quarter. In the U.S., Gateway had
opened Gateway Country stores inside of 92 OfficeMax stores by quarter's end,
an increase of 80 during the quarter. This brings the total Gateway retail
distribution total to 758 as of the end of the quarter.
"As the original clicks-and-mortar PC retailer, we have understood since
we were first selling PCs over the telephone that a significant portion of the
populace, upwards of 60 percent, would rather touch the merchandise before
buying," Weitzen said. "One of the keys to our growth strategy going forward
is to continue to invest in retail distribution that mirrors our direct
business model and allows us to reach out to an ever greater population with
not just hardware, but services such as training, financing and Internet
access. Our innovative store-within-a-store concept allows us to do just
that."
Operating Income
Fueled by robust sales of beyond-the-box services, such as training and
solutions bundles as well as strong PC unit growth, operating income for the
second quarter rose to $169 million, a 37 percent increase over the second
quarter of last year. For every PC sold to consumers, an average of four non-
PC items, such as training, Internet service, solutions bundles and financing,
were sold along with the system, a 67 percent increase over a year ago.
"During the second quarter, Gateway's operating income increased at a rate
more than three times revenues due to productivity gains from Six Sigma
projects, favorable component prices and acceleration of our beyond-the-box
strategy," said John Todd, senior vice president and chief financial officer.
"Another key to second quarter earnings was that half of the 40 percent of
income that came from beyond-the-box products and services was in the form of
recurring income, our highest level of recurring income yet."
Selling, General & Administrative (SG&A) expenses were $330 million, down
slightly as a percentage of sales in the second quarter versus a year ago.
SG&A was 15.4 percent of sales in the second quarter versus 15.6 percent of
sales a year ago.
Gateway's second quarter average unit price was $1,830, down only 4
percent from last year and down only 1 percent from the first quarter of 2000.
Gross margins were a record 23.3 percent of sales, an increase of 130
basis points over last year and the tenth consecutive quarter of year-over-
year margin improvement.
Net Income
Net income increased to $122 million, a 36 percent increase over year-ago
levels. Earnings per diluted share increased 32 percent to $0.37, up from
$0.28 per split-adjusted diluted share a year ago. The effective tax rate is
35.5 percent, down 0.5 percentage points from last year.
Outlook
Historically, the second half of the year is the strongest period for
Gateway, from back-to-school through the December holidays.
"As we move into our strongest selling season of the year, we're planning
to continue leveraging our beyond-the-box business model and distribution
strategy to meet our goal of delivering consistent earnings results, better-
than-industry growth rates and a more diverse and profitable revenue stream,"
Todd said.
During the second half of the year, Gateway expects to begin to offer the
first of its family of Internet appliance products, which it is co-developing
with AOL. The first device, a kitchen countertop appliance, will go on sale
before the December holidays. Two other appliances are expected to follow in
early 2001.
Gateway also will continue to expand aggressively its number of
distribution points through the balance of the year. By the end of the third
quarter, all OfficeMax stores in the United States are expected to have a
Gateway information and sales kiosk. Within one year, all OfficeMax stores
are expected to have a complete Gateway Country store-within-a-store, staffed
by a Gateway employee.
Special Note
The above statements include forward-looking statements based on current
management expectations. Factors that could cause future results to differ
from these expectations include the following: general economic conditions;
growth in the personal computer industry; competitive factors and pricing
pressures; component supply shortages; risks relating to new or acquired
businesses and joint ventures; and inventory risks due to shifts in market
demand. Additional factors are described in the Company's reports and other
filings filed with the Securities and Exchange Commission.
About Gateway
Gateway (NYSE: GTW), a Fortune 250 company founded in 1985, focuses on
building lifelong relationships with consumers and businesses through complete
technology personalization. Gateway ranked number one in U.S. consumer PC
revenue in 1999 (1) and was rated among the top ten best corporate reputations
in America according to a survey conducted in August of 1999 by Harris
Interactive and the Reputation Institute and published in The Wall Street
Journal. In 1999, Gateway was seventh in total return to shareholders among
Fortune 500 companies and tenth in total shareholder returns over the past
five years. (2) Gateway employees worldwide provide clients with services and
built-to-order computers that consistently win top awards from leading
industry publications. Gateway had total global revenue of $8.65 billion in
1999 and shipped 4.68 million systems. For more information, visit our Web
site at http://www.gateway.com
(1) According to GartnerGroup/Dataquest US PC Quarterly statistics.
(2) According to Fortune Magazine, April 17, 2000.
Gateway
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
Net sales $2,141,875 $1,912,109 $4,479,759 $4,015,520
Cost of goods sold 1,643,546 1,490,723 3,453,293 3,143,630
Gross profit 498,329 421,386 1,026,466 871,890
Selling, general
and administrative
expenses 329,688 298,463 664,625 608,159
Operating income 168,641 122,923 361,841 263,731
Other, net 19,945 16,491 37,649 31,275
Income before
income taxes 188,586 139,414 399,490 295,006
Provision for
income taxes 66,948 50,189 141,819 106,202
Net income $121,638 $89,225 $257,671 $188,804
Net income per share:
Basic $0.38 $ 0.28 $0.80 $0.60
Diluted $0.37 $ 0.28 $0.78 $0.59
Basic weighted
average shares
outstanding 321,265 312,886 320,639 312,940
Diluted weighted
average shares
outstanding 331,727 320,314 332,076 320,754
Gateway
Consolidated Balance Sheets
(in thousands)
June 30, 2000 Dec. 31, 1999
ASSETS
Current assets:
Cash and cash equivalents $732,261 $1,127,654
Marketable securities 206,688 208,717
Accounts receivable, net 658,677 646,339
Inventory 210,351 191,870
Other 471,835 522,225
Total current assets 2,279,812 2,696,805
Property, plant, and equipment, net 821,181 745,660
Intangibles, net 177,111 52,302
Other assets 798,939 459,921
$4,077,043 $3,954,688
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current
maturities of long-term obligations $4,244 $5,490
Accounts payable 739,772 898,436
Accrued liabilities 450,105 609,132
Accrued royalties 167,338 153,840
Other current liabilities 220,996 142,812
Total current liabilities 1,582,455 1,809,710
Long-term obligations, net of
current maturities 1,286 2,998
Warranty and other liabilities 150,751 124,862
Total liabilities 1,734,492 1,937,570
Stockholders' equity 2,342,551 2,017,118
$4,077,043 $3,954,688
SOURCE Gateway
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Related links:
http://www.gateway.com
CONTACT:
Media: John W. Spelich, Public Relations,
858-799-2657, John.spelich@gateway.com, or Investors: Marlys D.
Johnson, Investor Relations, 605-232-2709,
marlys.johnson@gateway.com, both of Gateway
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