Tessco to Sell Certain Retail Assets and Pivots to Focus on Higher-Margin Commercial Segment
Tessco to Sell Certain Retail Assets and Pivots to Focus on Higher-Margin Commercial Segment
October 29, 2020
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HUNT VALLEY, Md.–(BUSINESS WIRE) — TESSCO Technologies Incorporated (NASDAQ: TESS) today announced that it has taken action to exit its retail business and focus on its more successful and higher-margin commercial segment. Tessco signed a definitive agreement that provides for the sale of most of the Company’s retail inventory, the Ventev brand as it relates to mobile device accessory products and certain other retail-related assets to VoiceComm, LLC (VoiceComm).
“This transaction to exit the retail business is another successful milestone achievement as we continue to execute our strategy to better position the Company to drive long-term growth and enhance shareholder value,” said Sandip Mukerjee, President and Chief Executive Officer of Tessco. “With the changing retail environment, this business no longer generated sufficient returns on our capital to warrant a continued investment, and we did not see a clear path for returning the business to significant profitability. While we recognize that the retail business is part of Tessco’s legacy, we took this deliberate step to focus our efforts and resources to ensure we have enhanced financial and operational flexibility to drive profitable growth. We now will be fully dedicated to serving our commercial customers, and will redeploy our assets to take advantage of a once-in-a-generation opportunity amid the unprecedented rollout of new technologies and drive strong returns for our shareholders.”
Under the terms of agreement, Tessco will continue to fulfill orders and support its current retail business customers through, and to a limited extent beyond, the closing of this transaction, which is expected to occur in the third quarter. The Company will work with its retail customer and supplier partners to ensure a smooth transition. Tessco will retain its Ventev brand for use in its commercial business products and operations.
The Company expects that the exit from its retail operations will, going forward, generate approximately $8 million to $12 million in net cash flow in fiscal 2021 and another $4 million to $8 million in the aggregate over the next four years. Voice Comm is purchasing inventory and other retail equipment at closing and also has agreed to conditional payments over the next two years for purchase price adjustments related to the inventory conveyed at closing and future customer returns, and over the next four years related to VoiceComm’s sale of Ventev-branded mobile accessory products.
The transaction is expected to close in the third quarter of fiscal 2021, subject to various conditions. Following closing, approximately 20 current Tessco employees are expected to join VoiceComm, including Elizabeth S. Robinson, Tessco’s current Senior Vice President of Retail Sales and Product Marketing.
For the fiscal year ended March 29, 2020, the Retail segment represented $131.3 million of Tessco’s sales (24% of total sales) and $12.2 million of gross profit (13% of total gross profit). Retail segment profitability, net of direct expenses, were minimal in fiscal 2020 and the first quarter of fiscal 2021.
Mr. Mukerjee continued, “VoiceComm is an excellent strategic fit to acquire Tessco’s retail business and we believe they will serve our retail customer and vendor partners very well. I have confidence this business is in good hands and will have access to the necessary resources to support its future success. I would like to express my sincere gratitude and best wishes to our retail employees, who will have an opportunity to grow under the management of VoiceComm.”
About TESSCO Technologies Incorporated (NASDAQ: TESS)
TESSCO Technologies, Inc. (NASDAQ: TESS) is a value-added technology distributor, manufacturer, and solutions provider serving commercial customers in the wireless infrastructure ecosystem. The Company was founded more than 30 years ago with a commitment to deliver industry-leading products, knowledge, solutions, and customer service. Tessco supplies more than 65,000 products from 250 of the industry’s top manufacturers in mobile communications, Wi-Fi, Internet of Things (“IoT”), wireless backhaul, and more. Tessco is a single source for outstanding customer experience, expert knowledge, and complete end-to-end solutions for the wireless industry. For more information, visit tessco.com.