I just got off the conference call and will try to summarize as best
I can. Any opinion on my part will be bracketed. First, the numbers
appear to have come in ok. My understanding was consensus was 3 cents
and the whisper number was 3 cents. They came in at 4 cents the same
as last year so they beat the consensus. Click on news and you can
read it. A number of analysts were on the call and they had no
problematic questions. They seemed to understand the business and
none were negative. I got the sense they were pleased with the report
and the CC.
1. Bob Worsley went through the numbers and commented that it was a
good quarter. One item he focused on was the margin improvement.
2. Did comment on some softness starting in August and retailers
in general experienced the same trend. Felt that maybe the market
caused a slight pause in buying patterns due to economic concerns
(I felt this was a reasonable assumption). Said that last year the
4Q buying pattern for Xmas was rear end loaded as consumers waited for
bargains. Optimistic on 4Q from an overall standpoint.
3. Hit on the improvement in margins again. They corrected a problem
in 97 so the comparison between a great 3Q in 98 versus a poor 3Q in
97 is what caused the upward spike.
4. Catalogue costs going down due to paper pricing declines. This
will continue into 99. Overall, catalogues are larger so this savings
will be offset somewhat. Printing volumes stable.
5. Organized into four core businesses: 1. Inflight 2. Internet
3. Incentive which is the new Durham acquisition 4. International
The first three are profitable and accretive. International is taking
longer hurt by Asia but major plus in Europe in 99 when the EC
discontinues the practice of inflight duty free sales. (This puts
SKYM in the driver seat for very important incremental business from
a geography that currently offers limited opportunity.) SKYM is in
discussions now for next year with a number of companies. An Asia/
Pacific recovery obviously will help that market.
6. This quarter fully taxed at 40% versus no tax last year.
7. Said again it was a very good bottom line quarter.
8. Commented that American and Northwest still not a customer.
American went to a competitor and Northwest still has not committed.
(It did not appear to me that either of these two companies were in
the SKYM model or in any analysts model. There was no alarm from
anyone regarding this info.)
9. There was a breakout of revenue sourcing. Still coming from
traditional catalogue sales but Internet increasing each quarter and
it appears this holiday season may see that spike up a bit.
10. Durham acquisition went smoothly and it is profitable. They are
not going to mess with their model but and each will take advantage of
the other's product lines. It is incremental business.
11. There were questions on forward looking financial outlook. As
you might expect they did not want to comment but did say that they
are comfortable with the street's expectation.
12. Heavily focused on Internet. Added 16 technical people to
payroll to do internet E@Commerce implementation. Added 4 people to
do Internet marketing to close additional alliances and deals. SKYM
is selling their infrastructure support to other companies as a
revenue generator and to drive additional customers to SKYM sites and
products. SKYM will become a "content provider" to high traffic sites
and expect the current 50,000 visitors to increase sharply. He
alluded to more announcements in future. (I thought this was an
important part of the call. It set the strategic and tactical plan
for 99 and beyond.)
13. Covered the advertising plan with CNN blurbs at the gates,
inflight adds during movies, etc.
14. Focused back on SG&A (Sales, General, and Administrative)
expenses. Sales was only limited portion. G and A mostly in the
area of Internet E@Commerce ramp up, developing the upcoming
European opportunity, and the acquisition of Durham. Key point was
this expense was, for the most part, a one time event so 3Q SG&A was
disproportionately high compared to past quarters and looking forward.
(I thought that was an encouraging point considering this same quarter
beat the street.)
15. Summary of CC focused on the three new channels of Internet,
Incentive, and International since these complement Inflight and have
very good upside incremental business opportunity. Made it clear that
there were additional announcements coming and that each CC
participant should keep in mind the strategic and tactical direction
and if you do it will be obvious how these announcements fit in. (It
appeared to me that there was definitely a solid logic stream to their
game plan.)
(all in all, I think they did a good job with the CC. I believe there
will be replays so call IR to get that number if you wish to hear the
call for yourself). Hope this helps and it was a best efforts to get
the CC stated correctly and objectively. |
