Mail Boxes Etc. Is Posting Rapid Growth
Mail Boxes Etc., once viewed as little more than a strip-mall alternative to buying stamps at the post office, is now a nationwide postal products and office services retailer that’s still growing rapidly--and Wall Street is taking notice.
The franchiser’s stock has more than tripled during the last 16 months, including a 20% jump in just the last two weeks. The stock gained another 62.5 cents Thursday to close at $25.875 a share on Nasdaq.
Investors’ interest has been piqued by strong earnings reports from the San Diego-based company in recent months and expectations that new ventures will swell its results even more.
For instance, Mail Boxes’ profit for its fiscal year ended April 30 surged 29% from the previous year, to $8.7 million, while its revenue climbed 17% to $59.1 million.
The figures show that Mail Boxes--which offers not only mailboxes, stamps, envelopes and other postal products, but also supplies and services for offices and small businesses--remains a modest company on a dollar basis.
The company, started in 1980, is largely a collector of royalties and other fees from franchisees who independently own and operate outlets. Mail Boxes also sells them supplies and equipment.
But the Mail Boxes franchise now extends to more than 3,100 stores, 15% of them outside the United States. Overall, more than 300,000 people visit the stores daily, analysts estimate.
And because Mail Boxes now has that nationwide reach, it’s an attractive partner for other companies that want to peddle their own services to more people.
In June, for example, Mail Boxes formed a joint marketing pact with long-distance telephone provider WorldCom Inc. whereby its telephone service is being sold at a discount through Mail Boxes’ stores.
Shipping giant United Parcel Service, which owns 17% of Mail Boxes, has also begun a program in which customers can more conveniently return merchandise to catalog retailers if they use Mail Boxes stores.
For Mail Boxes, such ventures are exceedingly profitable because they require very little upfront costs on its part.
“Companies are coming to them asking for access to those 300,000 people” who visit Mail Boxes daily, said Gregory Cappelli, an analyst with the Chicago Corp. investment firm.
In the meantime, Mail Boxes can also rely on a steady flow of royalties and fees collected from its growing number of franchisees.
About 70% of Mail Boxes’ annual revenue is so-called recurring revenue, meaning it’s made up of fees and other payments that are fixed for a period of years. “That gives the company consistency in terms of revenue and profit streams,” said Susan V. Lacerra, who follows Mail Boxes for the investment firm Robertson, Stephens & Co. in San Francisco.
Not everyone is thrilled with Mail Boxes, however.
More than 30 franchisees are suing the company in San Diego County Superior Court, and an initial test case involving four of them is set for trial beginning Oct. 15. The group overall is seeking more than $1.5 million in damages.
The franchisees allege that Mail Boxes defrauded them by claiming that its outlets have a 98% “success rate” when, in fact, a “substantial number” of owners have lost money. They maintain that the company’s success rate refers to stores that have remained opened, regardless of whether the stores have had several owners who went bust.
“As long as the unit stays open, even if it has four bankrupt owners coming in and out, that’s touted as a successful unit,” the plaintiffs’ lawyer, Mario Herman, said in a telephone interview Thursday.
Mail Boxes denies any wrongdoing, but it declined to elaborate Thursday pending the trial.
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Return to Investor
Mail Boxes Ec. has been capitalizing on its diversity of services. Its stock has soared about 20% in the last two weeks. Daily closes since Sept.3:
Oct.: Thurs. close: $25.875
Source: Bloomberg Business News
