DMA Releases Quarterly Business Review for Q3; Survey Finds 13th Consecutive Quarter of Positive Results

October 18, 2006 — The Direct Marketing Association (DMA) today released its Quarterly Business Review (QBR) for the third quarter (Q3) of 2006. Among its key findings, the QBR reported the thirteenth consecutive quarter of positive economic growth, with findings that indicate strength and growth in Revenue vs. Same Quarter Last Year (SQLY) with a direct marketing business-wide Index of 61.

According to three online surveys – to direct marketers, suppliers, and agencies – regarding their Q3 performance, Revenue vs. Original Projection, while somewhat disappointing at 47, was consistent with Q2 and a slight improvement over Q1.

“Third-quarter results were strong across all three segments on the metrics of Revenue vs. SQLY and profitability, although growth was somewhat softer than in quarter two,” said Dr. Peter Johnson, DMA’s vice president, research and market intelligence.

In the QBR Index, a score of 50 represents no change in the direct marketing business’ performance for the quarter versus the same quarter last year. Scores above 50 represent growth, and those below 50 represent a decline.

The QBR for the third quarter also reported that Projected Revenue for the current (i.e., fourth) quarter remains strong with an overall Index of 67. All three segments – marketers, suppliers, and agencies – expressed optimism for Q4, continuing a year-long trend of anticipated growth for this quarter. Agencies are somewhat less likely than marketers and suppliers to forecast greater growth in Q4.

Business-wide Overview

Despite a drop from Q2’s 66, Q3’s Revenue vs. SQLY Index of 61 marks the thirteenth consecutive quarter of positive results. Q3 findings show strength in both Revenue vs. SQLY and Profitability.

Revenue vs. SQLY decreased by 5 points compared with Q2, and Profitability decreased by 2 points over the previous quarter. However, the Revenue vs. Original Projection remained consistent with Q2’s score of 47 and indicated a nominal business-wide increase from Q1’s 46.

DM Marketers:

· Q3 was healthy for Marketers, with both SQLY and Profitability reflecting a strong performance, although at somewhat lower levels than in Q2. Revenue vs. SQLY dropped to 60 from 66, while Profitability decreased to 68 from 72.

· Q3 Revenue compared with Original Projection rose slightly, to 48, a 1-point gain from Q2.

· The weighted average sales change – the measure that is more reflective of the DM community in aggregate – was 6.9%. Although below both the weighted average sales increases in Q2 2006 (8.2%) and Q4 2005 (12.4%), it improves on the more modest increases reported in Q1 2006 (5.8%), Q3 2005 (4.8%), and Q2 2005 (5.9%). .

· Marketers’ revenue projections for Q4 2006 remained strong at 68, which was 3 points higher than projections for Q3.

DM Agencies:

· Revenue vs. SQLY was positive at 60, although at a somewhat lower level than in Q2 (69) and Q1 (64).

· Profitability was again the strongest of the three metrics for Agencies, with an Index of 71, up slightly from Q2’s 70 and Q1’s 68.

· Q3 Revenue came in as expected, with a Revenue vs. Original Projection Index of 50.

· Agencies are optimistic for Q4. Revenue projections indicate continued growth in the next quarter. The Q4 forecast of 63 is a more modest projection than Q3’s 70, and is more comparable with the 66 for Q2 and the 61 for Q1.

· The Agency Client Volume showed growth in Q3, but at more modest levels than in Q2 and Q1.

DM Suppliers:

· The Revenue vs. SQLY and Profitability metrics reflected growth for Suppliers in Q3. Revenue vs. SQLY held steady at 64.

· Although a 2-point drop from Q2, the Profitability Index remained healthy at 69.

· Q3 Revenue vs. Original Projection matched Q2, with an Index of 44. This metric was also in negative territory in Q1 and in most of 2005.

· Reflecting expectations for growth for the last quarter of the year, the Projected Revenue Index for Suppliers rose to 71 for Q4. This projection exceeds that for the previous four quarters (67 for Q3, 63 for Q2, 69 for Q1, and 68 for Q4 2005).

· Suppliers anticipate charging more for direct marketing services in 2007 than in 2006, with a score of 1.29. (A score above 1 reflects a higher growth rate for the next year).

Breakout: Business-to-Business Segment:

· The Revenue vs. SQLY and Profitability indices for Business-to-Business (B-to-B) Marketers remained positive in Q3 2006. With a Revenue vs. SQLY of 56, growth was softer than in Q2, when this Index was 70

· The B-to-B unweighted average sales increase of 2.8% in Q3 was a considerable decline from the 11.7% reported in the previous quarter, although it is more in line with the 4.7% reported for Q1 2006.

· The B-to-B weighted sales change – the best measure of sales growth for this segment – was somewhat lower in Q3 (9.7%) than in Q2 (10.7%), but considerably higher than in Q1 (3.7%).

· B-to-B Marketers look for growth in Q4 2006. The Projected Revenue Index of 69 is 1 point higher than the Index for Q2 and Q1 2006, and denotes the seventh consecutive quarter of projected revenue indices in the 60s.

Breakout: Catalog Segment:

· Revenue vs. SQLY and Profitability indices were extremely positive for Catalog companies. Revenue vs. SQLY was 64, a small drop from Q2’s 65, but an uptick from the 59 posted in Q1 2006.

· Profitability also registered growth at 64. While this marked a 10-point drop from Q2’s high of 74, it nearly matched Q1’s 65.

· Q3 Revenue vs. Original Projection marked a turnaround on this metric with an Index of 61, compared with 48 in Q2 and 52 for Q1.

· Catalogers forecast a very healthy revenue growth for the next quarter. The 72 Index is a small improvement over Q2 and Q1 (69 and 70, respectively), and points to a very positive outlook.

Breakout: Consumer Products or Services:

· All three major performance indicators for the Consumer Products or Services sector were higher than they were in both Q2 and Q1.

· Q3 Revenue vs. SQLY was extremely strong, with an Index of 79, up 8 points from Q2’s 71.

· Profitability was very healthy with an Index of 77 (4 points higher than in Q2). Consumer Marketers have a history of solid Profitability results; this Index has been in the 70s in six of the seven quarters since Q1 2005.

· The expectations for Q4 2006 Revenue are very healthy, with an Index of 69. This matches the projection made for Q3.

About DMA’s Quarterly Business Review (QBR)

DMA’s Quarterly Business Review (QBR) is based on three online surveys of DMA marketer, agency, and supplier member companies. The third-quarter survey was fielded by DMA’s Research and Market Intelligence Department between September 10 and September 26, 2006. DMA received 210 survey responses.