Expect the unexpected

What a difference a couple of months can make. On 15 December 1998, Computerland UK pumped out a bullish forecast for the second half of its financial year. But on 1 March, the Nottingham corporate reseller followed up with a profit warning. It said results for the full financial year ending 30 April would be 'significantly below expectations' because of an unexpected fall in product sales in December and January.

In December, Computerland said the integration of sales, service and back office functions of two recent acquisitions was now complete, leaving the reseller in an 'excellent position to realise the full benefits of our recent acquisitions during the second half of the year', according to chief executive Graham Gilbert.

But it was not to be. Analysts have marked down 1998 profit forecasts from #1.7 million to #1 million. And, not surprisingly, investors are less than impressed.

Shares slumped 60p to 100p on 1 March, the day the warning was released.

According to reports, the problems lie in sales of 'prepackaged software', which it says are likely to be 15 per cent down in the second half. If the reports are correct, an awful lot of Microsoft licences must be going someone else's way.

Computerland says product sales are expected to continue at this lower level until the end of the financial year. The level is, of course, more than 15 per cent lower than the first half, given that November trading matched earlier - and higher - expectations.

So, where does the blame lie? Computerland claims it is in transition - the reseller is spurning the pure product sale in favour of the value-adding one-stop shop approach.

Unfortunately, product sales slumped before the one-stop approach came through.

In the eyes of the City, Computerland is a hybrid company, with too much product and not enough services. It is also small cap - less than #40 million annual turnover - and that does not help the reseller in the investor popularity stakes. But last week's share slump is hugely overdone. Every company should be allowed the occasional stumble, especially when there are no life-threatening consequences.

Until now, Computerland has been the model of a well run computer dealership. This is why it had the nerve to float on AIM in the first place. The company has demonstrated that it can do organic growth and acquisitions. Last year's takeovers of Netman and KDL - both companies are now subsumed into Computerland - has delivered a healthy boost to the total group's sales.

In an interview with the Evening Standard, Gilbert stated Computerland's transition to value-added shop would take 'months, not years'. There seems little reason why we should not give him the benefit of the doubt.