Handleman Has Help From 'celebrity' Friends 'n Sync

Strong performance of 'N Sync's Celebrity (Zomba/Jive) in such mass-merchant retail outlets as Wal-Mart Stores, Kmart, and others helped propel Handleman to its best quarter ever for sales.

For the first quarter, which ended July 28, the Troy, Mich., distributor posted revenue of $261.1 million, compared with $231.4 million in the same period last year. Net income rose to $2 million, or 8 cents per diluted share, from $1.7 million, or 6 cents per share.

Handleman's North Coast Entertainment unit—which includes a home-video label and a record label—performed poorly, producing an operating loss of $4 million, compared with a loss of $2 million last year. Revenue rose to $25.4 million from $24.2.

The loss is largely due to troubles at preschool entertainment house the Itsy Bitsy Entertainment Company. Handleman has now installed a new GM, cut staff, and refocused the company on licensing.

Handleman's main unit, distributor Handleman Entertainment Resources, had operating income of $10.2 million, up from $6.0 million last year. Revenue rose from $207.7 million to $239.4 million.

According to Handleman, mass merchants accounted for 1.1 million of the 1.9 million copies of Celebrity sold in the U.S. in the quarter. Handleman-supplied stores alone accounted for 25% of U.S. sales.

Peter Cline, president/COO of Handleman, chalks up that performance to the simple drawing power of mass merchants. "Mass really did a nice job displaying the product—getting it out in front of the customer."

Bright prospects

The company expects more of the same from upcoming releases by Britney Spears and others. As a result, it says, sales for the current quarter should rise 13%-15% from the corresponding period last year, when it had revenue of $231.4 million. Net income should be 4%-8% higher than the $1.7 million, or 6 cents per diluted share, earned a year ago.

Handleman's international business continues apace, currently highlighted by a fulfillment relationship with Wal-Mart-owned British mass merchant ASDA. Handleman is still setting up shop in the U.K., says Cline, who recently traveled there to check on the progress. "We're just wrapping up the automation of our warehouse in Manchester. We hope to go live within the next couple of weeks.

"The next obvious moves would be to either Germany or France," Cline adds. He says Handleman would likely purchase or partner with an existing firm, joining its own business model—"our replenishment systems, our new-release benchmarking systems, our field-sales force organization"—with a partner's market familiarity.

new ventures

During its second quarter, Handleman also began providing fulfillment and other services for JCPenney.com's Music & Movies store. Cline says Handleman is taking a wait-and-see approach about serving as distributor to JC Penney itself, should the retailer bring music back into its stores. "We just wanted to get this under our belt and see if there might be some cross-merchandising opportunities with them."

Handleman has a four-person staff devoted to new-business development and hopes to be able to announce the addition of a new client within the next 90 days.

Cline says, "We would like to pick another mass-merchant customer or another bricks-and-mortar customer."