Branding Has Done Little For Gateway

May.11.07 | About: Gateway Inc. (GTW)

Many marketing gurus and specialists would have the world of business believe that building a brand is everything when it comes to product and company success. However, Gateway's (GTW) results in its recent quarterly conference call may provide an argument to the contrary.

In Wednesday's call, company management pointed to the Gateway brand as one of the company's key strengths.

According to Gateway SVP and CFO John Goldsberry, "Since joining Gateway, it's been clear to me that one of our biggest strengths is the brand itself, with 96% aided awareness among consumers according to the most recent data."

Hmm. Did this strong brand awareness among consumers translate into solid sales results and strong margins? Nope.

John Goldsberry discusses its sales and margin growth:

"However, despite sequential margin improvements in our Retail and Professional segments, the business continued to generate unacceptably low margins overall. The net result is we had an operating loss of $6.7 million versus a loss of 4.1 in Q4 and a loss of $15.7 million a year ago. We reported a net loss of $8.6 million, or $0.02 a share."

He also added that Q1 revenue came in at just over $1 billion. This was down 1% from Q4 due to a 14% sequential decrease in Professional revenue. Finally, gross margins came in at $49.7 million in Q1, which was down 6% from $52.7 million in Q4, and down 37% from last year. The overall gross margin decreased to 4.9% from 5.2 % in Q4, and from 7.3 % last year.

These are not bad numbers for a company that has a 96% aided awareness of its brand among consumers. I wonder if 100% aided awareness would make a difference.

It's doubtful.

GTW 1-yr chart
GTW 1-yr chart