CDW March Sales Look Good, But Raise Questions

This past Thursday, 11th of April, CDW Corporation (CDWC) jumped up $3.54 from $61.94 to $65.48, a gain of 5.72%, after it announced its March sales results.

The opening part of the press release is positively glowing.

VERNON HILLS, Ill. - April 12, 2007 - CDW Corporation [NASDAQ: CDWC], a leading provider of technology products and services to business, government and education, today announced average daily sales for March 2007 were $31.644 million, an increase of 24.6 percent compared to average daily sales of $25.392 million for March 2006. Total sales for March 2007 were $696.2 million, an increase of 19.2 percent compared to total sales of $584.0 million for March 2006. There were 22 billing days in March 2007 and 23 billing days in March 2006.

But further down in the press release, the results do not seem nearly so glowing.

Total corporate sector segment sales in the first quarter of 2007 were $1.219 billion compared to $1.150 billion in the first quarter of 2006, representing an increase of 6.0 percent. First quarter of 2007 average daily sales for the corporate sector segment were $19.047 million compared to $17.972 million in the first quarter of 2006, representing an increase of 6.0 percent. Total public sector segment sales in the first quarter of 2007 were $497.4 million compared to $438.4 million in the first quarter of 2006, representing an increase of 13.4 percent. First quarter of 2007 average daily sales for the public sector segment were $7.772 million compared to $6.851 million in the first quarter of 2006, representing an increase of 13.4 percent.

Here we learn that during the first quarter, corporate sales only increased 6.0 percent, not the lofty 20 plus percent mentioned in the first paragraph. As the company properly noted, its March 2007 sales included sales from Berbee Information Networks Corporation and March 2006 sales did not include Berbee—an apples and oranges comparison. Given that the corporate sector sales increase is far behind that of the public sector, I am curious what that signals about the company's outlook for the remainder of the year. A 6.0 percent increase by itself is a healthy and respectable number. But did that increase in sales result from reduced margins?

Investors will learn more when the company releases its first quarter results on the 24th of April before the market opens and has its conference call later. I will be listening carefully to what the company says about its margins; Vista, Microsoft's (MSFT) new operating system; private versus public sector sales; and outlook for the remainder of the year.

Disclosure: I am short CDW shares.

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