Cash Conversion Cycle

Working Capital is raising its profile more than ever thanks to the diminishing availability of cash from the markets, but it has been a noteworthy element of Amazon's business for some time. Amazon focuses on three financial measures - maximising profit dollars [not margin, which is usually expressed as a percentage], optimising free cash flow [at Amazon, expressed as free cash flow per share], and increasing ROIC [Return on Invested Capital].

During his presentation at Barclays Capital Global Technology Conference in San Francisco back in December 2008, Tom Szkutak, Amazon's CFO, put up a Cash Conversion Cycle chart. This is sometimes known as a measure of the Days of Working Capital, while Amazon calls it the Operating Cycle. It is calculated by adding together inventory days and receivables days, and then deducting payables days. For Amazon, as of 30th September 2008, the results were as follows: Inventory Days - 29, Receivables Days - 5, and Payables Days - 55. Roll the numbers and you get a positive cash conversion cycle of 21 days - that means, in an average cycle, cash comes in three weeks before it has to go out.

Amazon Shines

Amazon has just released its Q4 FY08 results. Net sales increased 18% to $6.7bn from Q4 FY07. Excluding adverse exchange rate adjustments, sales would have grown by 24%. Operating income was flat at $272mn, compared with $272mn in the comparable period in FY07. For the full fiscal year, net sales climbed 29% to $19.17bn, and operating income grew by 28% to $842mn.

International sales, that's sales from Amazon's sites in the UK, Germany, France, Japan and China, now represent 46.6% of the firm's overall sales. That's up by just 1.2% from 2007. But, operating income from international sales generated 59.3% of the total in 2008. That's up from 52.9% in 2007.

Trade-in Program #1

Back at the end of October, RadioShack launched an online electronics trade-in program in collaboration with CExchange. The principle is pretty simple. You first go to the Trade-in Program page of RadioShack's website and register or log-on. You then select the product that you want to trade-in. You are asked whether the machine is 'fully functional' and whether or not you will also be trading-in the charger. You then have to rate the condition of the machine - is it broken, is there evidence of heavy wear, is there evidence of light wear, or is it 'cosmetically excellent'. Once you've answered these questions, CExchange quotes you a price. If you're happy, you get to print off a pre-paid shipping label, box-up the product, and send it off [only in the US, as you would expect]. Then, some two weeks later you receive a voucher which can be redeemed either online or in a RadioShack store. It's not an altogether new idea, but sounds simple and efficient. More like this please.

Logitech Q3/09

Just a few days ago, Logitech explained that it would withdraw its growth targets for FY09. Well, no wonder. Logotech has just announced its Q3 FY09 results, and it's not looking good at all. Gerald Quindlen, Logitech's CEO, said: "All indications point to an even weaker retail environment in the coming months. Consequently, our plans assume that in Q4 we will see year-over-year declines in sales, operating income... and gross margin that are similar or worse than the year-over-year declines we experienced in Q3". In Q3, Logitech's sales were 16% down on the same period in FY08. Gross Profit was down 32%, with Gross Margins declining from 36.9% to 29.9%. Operating Income was down 63%. And Net Income was down 70%...

Apple Retail Update

Apple announced its Q1 2009 numbers yesterday. During the subsequent conference call, Apple expanded on some of its activities in the retail channel.

Tim Cook, Apple's COO, explained that there are currently 286 Apple store-in-store sites in Best Buy stores in the US, but this is going to more than double to around 600 in the next six months.

Peter Oppenheimer, Apple's CFO, said that Apple expects to open between 35 -  40 of its own stores in the current fiscal year. The majority will be outside the US, including a first Apple Store in China.

Kesa Down Again

Kesa Electricals, home to Comet, Darty, Menaje Del Hogar and others, has announced its results for the trading period from 1st November 2008 to 8th January 2009. While the results look good in Sterling, with an 11.0% increase, they declined by 2.2% in local currency, and by 5.5% on a like for like basis.

In France, Darty's like for like revenues declined by 6.2%, while in the UK, Comet's like for like revenues declined by 2.5%. There was 'another significant fall in revenues at Menaje Del Hogar', but the numbers from their Spanish subsidiary have not been published as a separate line item.

DSGi Down

Circuit City Auctions

Circuit City has "received expressions of interest for Going Concern Transactions and continues to explore various financing alternatives". As such, the date for Circuit City's three inter-connected auctions have been moved.

A 'Miscellaneous Asset' auction will now take place on 13th January, starting at 12.00 EST. A 'Store Closing' auction will take place on 14th January starting at 12.00 EST. And, a 'Going Concern' auction will start of 15.00 on 14th January, or following on from the conclusion of the 'Store Closing' auction.

Circuit City's local newspaper - the Richmond Times-Dispatch - suggests that the 'expressions' of interest have come from Ricardo Salinas [who owns Grupo Elektra, which, amongst other things, runs Latin America's largest chain of consumer electronics stores] and Mark Wattles [who owns the Ultimate Electronics chain]. Both of these investors are significant shareholders in Circuit City.

SWOT Analysis

Best Buy's current CMO is Barry Judge and his blog can make interesting reading for those of us at the interface between technology suppliers and their retail channel partners. Back in October, Barry invited the readers of his blog to contribute towards the SWOT that he and his colleagues were developing as part of their annual planning process. Judge got over 30 responses, some of which added real insight to the initial skeleton framework that he posted on his blog. An utterly fascinating use of social media.

Bleak Outlook

The British Retail Consortium and KPMG have worked together for several years to produce a monthly Retail Sales Monitor for the UK. The latest edition, published earlier today, carries the title: 'Worst December in Survey's History'.

Helen Dickinson, Head of Retail at KPMG, said: "December's performance has historically set the scene for the year ahead, so the outlook is indeed bleak. In a business where cash is even more important than ever, due to the impact of the credit crunch, retailers did all they could in December to keep the money coming in, raising discounts across the month to unprecedented levels. That this was the worst December sales performance since the survey began 14 years ago is testament to the severity of the shift in mentality of the consumer."

Dixon's Downtime

"To ensure we continue to improve your shopping experience with PC World we are upgrading our website. Unfortunately this means that the website is currently unavailable." It says something similar over at www.dixons.co.uk. A spokesman for DSGi told Channel Register that they: "Had some routine maintenance last night which has caused problems". To happen in the week when DSGi will be publishing its hugely disappointing results from the Christmas period can't be a good omen.

Apple Store Openings

Reliable AppleStore blogger, Gary Allen, predicts the opening of four new Apple Stores in Europe in the first half of 2009 - Brighton [UK], Paris [France], Reading [UK] and Zurich [Switzerland]. There are currently 20 Apple Stores in the UK, 1 in Germany [Munich], 1 in Italy [Rome], and 1 in Switzerland [Geneva].

DSGi Drop

The UK's Sunday Times says that over the next few days, DSGi will "unveil its worst Christmas trading performance since the recession of the early 1990s, with a savage double-digit drop in like-for-like sales". Reports elsewhere suggest analysts believe that DSGi's sales drop was around 10% over the 12-week Christmas period. DSGi's share price has fallen by more than 70% over the past 12 months.

Comps Lesson

Best Buy has just reported a 6.5% reduction in comparable store sales for Fiscal December 2008 [which ended on 3rd January 2009]. Comps, Same Store Sales, Like-for-Like Sales - these all mean roughly the same thing - they exclude sales from new store openings, new store acquisitions, and such like. But Comps is not a standard term with a standard definition. It certainly doesn't conform to GAAP. Unlike many others, Best Buy makes a good job of trying to explain how it determines Comps.

Best Buy's press release says that Comps are: "Comprised of revenue at stores, call centres and web sites operating for at least 14 full months, as well as remodeled and expanded locations. Relocated stores are excluded from the comparable store sales calculation until at least 14 full months after reopening. Acquired stores are included in the comparable stores calculation beginning with the first full quarter following the first anniversary of the date of the acquisition." Exchange rate fluctuations are ignored as far as Best Buy's Comps calculation is concerned.

Best Buy goes on to explain that: "The method of calculating comparable store sales varies across the retail industry. As a result, Best Buy's method of calculating comparable store sales may not be the same as other retailer's methods."

Resource Redeployment

Lenovo has announced a 'resource redeployment' plan - or, in more prosaic terms, a massive layoff of 2,500 employees [that's around 11% of its global workforce]. This type of language has been ridiculed quite recently by FT columnist, Lucy Kellaway. She awarded a 'prize' for the Best Term For Sacking People - one of her favourites was 'Dynamic Rightsizing', which means regular sackings, only more exciting and souped-up. But her winner, was to 'Upgrade', a term apparently used by a firm in the US which said to its sacked employees: "We are going to upgrade you with immediate effect. We are going to allow you to move on in order that you can use your talents and skills more effectively and thus upgrade your career and opportunities".

Intel Downgrade

Intel has announced preliminary Q4 results with revenues down 23% year-on-year to approximately USD8.2bn. Back on 12th November, a mere 8 weeks ago, Intel had already reduced its forecast Q4 revenues from USD10.1 - 10.9bn to around USD9bn.

As reported in the San Francisco Chronicle, the fact that Intel has had to revise its Q4 numbers twice "indicates how deeply the economic meltdown has damaged the semiconductor industry". "Consumers, singed by layoffs and falling home prices and stock portfolios, have scaled back their spending as well." More details will be available when Intel reports formally on 15th January.

Logitech Slowdown

Just one month after celebrating the shipment of its billionth mouse, Logitech has announced that it has withdrawn its growth targets for FY09. The explanation given by CEO Gerald Quindlen is a combination of reductions in customers' inventory levels plus an expectation that the economic environment will worsen in the coming months.

Logitech will be reporting its Q3 results on 20th January.

Media Markt at 30

Europe's largest specialist electronics retailer - Media Markt - will be 30 years old in November this year. To celebrate this anniversary, the company is planning a series of initiatives over a 30 week period, starting this month with a zero per cent financing offer. All products with a sales price of €300 or more can be financed free of charge for 30 months.

Media Markt is currently present in some 15 European countries, operating some 540 stores. With very few exceptions [Portugal, for example], when Media Markt opens its first store in a new country, it isn't too long before it becomes the No.1 specialist electronics retailer in that country.