- The Washington Times - Monday, May 15, 2006

Varsity Group last week announced that it acquired IQ Digital Studios to beef up its marketing and expand services to educational institutions.

Washington-based Varsity Group is an online bookstore for educational institutions and a seller of school uniforms.

IQ Digital Studios is an advertising agency focused on educational branding, communications and marketing. It also specializes in Internet education, content design and streaming video. Terms of the sale were not disclosed.

Mark Thimmig, Varsity Group’s new chief executive officer, said the acquisition would allow Varsity Group “to improve our speed to market as we add new products and services.”

Varsity Group’s fast track of growth and acquisitions makes it one of Washington’s shining stars among survivors of the dot-com bust.

Founded in 1997 by Eric J. Kuhn as a means for college students to buy books over the Internet, it has grown to provide books, supplies and uniforms to hundreds of colleges and private schools nationwide, beginning in kindergarten.

The company only barely survived the stock market downturn of 2000. Its stock fell as low as 13 cents per share after reaching $10 per share less than a year earlier.

In response, Varsity Group outsourced the most costly parts of its business and focused on private schools. It is now in its fifth year of profitability.

For fiscal 2005, it reported net income of $12.1 million (64 cents per diluted share) on revenue of $50.1, up from net income of $6.9 million, (9 cents) on revenue of $37.7 million one year earlier.

The company operates with about 80 employees at 1300 19th St. NW.

Varsity Group’s board chose Mr. Thimmig as its chief executive officer in February, largely because of his reputation for generating rapid business growth. He said he plans to diversify Varsity Group’s products and services for educational institutions.

Before joining Varsity Group, Mr. Thimmig served as chief executive officer of White Hat Ventures, an education management company that owned IQ Digital Studios.

In four years under his leadership, White Hat grew from managing 12 schools serving 3,500 students in Ohio to 51 schools serving 22,000 students in seven states. The company’s annual revenue grew 1,000 percent to more than $100 million.

Analysts say Varsity Group’s growth is unlikely to level off soon.

“They’re in the midst of building an infrastructure to support more growth than they’ve had in the past,” said George Sutton, equity analyst for Minneapolis investment banking firm Craig Hallum. “This has been a 25 to 30 percent top-line growth business. I think it’s still positioned for similar growth in the next few years.”

However, Varsity Group faces increasing competition as other companies try to mimic its success. Its market share dropped from 68 percent in 2004 to 52 percent in 2005.

One of the biggest threats could come from online retail giant Amazon.com.

“While this is a fear that is now years old and certainly less relevant given the service component of the Varsity Group offering, we feel it is necessary for clients to consider this competitive risk,” Mr. Sutton said.

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