Retailing: Good Present, Bright Future

Some ultra-high-end two-channel specialists may still be singing the blues, but others in the electronics retailing business are humming happier tunes.

Eden Prairie, MN–based chain Best Buy Co. reported a rise of 5.7% in same store sales for the first quarter of 2002. In a press release dated Thursday, June 6, the retailer said it experienced stronger than expected sales, and predicted first quarter earnings of 21¢ per share. That compares well to the company's 26¢ per share for the same period in 2001.

Thanks primarily to sustained sales growth of digital televisions, DVD players, digital cameras, and satellite systems, Best Buy predicts earnings growth of 18–21% for the fiscal year. The company's first-quarter total sales rose 24% to $4.58 billion from $3.7 billion a year ago, an increase largely attributable to the addition of 63 Best Buy stores in the past 12 months, and the inclusion of results from Future Shop stores, a Canadian chain acquired in November. Sales totals for Canadian stores rose 9.6%, Best Buy reported.

The company's Musicland stores, which sell CDs and personal electronics, dropped by 1.2% in the first quarter. The music industry is in the midst of its longest and most profound sales slump.

Circuit City also posted strong first-quarter sales gains, with upscale television sets and DVD players among the strongest product categories. Sales at company stores Circuit City open at least a year rose 12% in the quarter ended May 31, surpassing Circuit City's estimate for a mid- to high-single-digit increase. Total sales for the Richmond, VA–based chain rose 13% to $2.14 billion from $1.88 billion.

Despite the sales increase, Circuit City predicts a first-quarter loss of 1–4¢ per share, due to remodeling costs for some stores. The company plans to spin off its CarMax auto-store chain this summer.

Prices for DVD players continue to drop, but the format is a driving force for consumers to upgrade their home entertainment systems, analysts insist. Factory-to-dealer shipments of DVD machines were up 24.3% during the first four months of the year, compared to the same period a year ago, according to figures from the Consumer Electronics Association (CEA).

Things are also looking up for San Francisco–based upscale electronics retailer Good Guys, which has posted its first positive numbers in four quarters. For the quarter ended May 31, same-store sales rose 2%. Net sales declined $500,000, or 0.29%, to $171 million, due to write-downs from the closing of several under-performing stores. Like its competitors, Good Guys cites digital video products and high-end video displays as strong sellers, and credits some of its gains to higher average sales and a generally improving economy in California.

Business has improved to the extent that Good Guys creditors Bank of America and GE Capital have extended the company's three-year, $100 million credit arrangement to May 2006, according to CEO Ken Weller.

Life is also good for Canton, MA–based Tweeter Home Entertainment Group. On June 4, in an statement that included a mention of "slightly positive" sales results for the first two months of the fiscal quarter, Tweeter Group president and CEO Jeffrey Stone announced that his company is scaling back its expansion program—but will nonetheless aim to open "15–20 new stores in fiscal 2003."

Of Tweeter's continuing efforts to acquire smaller regional chains, Stone said, "We have done a fantastic job acquiring retailers and creating a presence in key markets across America. Three years ago we had 62 stores in 12 states and today we operate 162 stores in 21 states. Our plan had been to open 40 new stores in existing and contiguous markets for each of the next four years beginning in fiscal 2003. We have scaled that back to 15–20 new stores for fiscal 2003, with an additional 6–8 relocations, with the majority of the new stores opening in the first half of the year. We currently have 15 leases signed for the next fiscal year."

The reason for the temporary cutback in the expansion is "straightforward . . . We feel that conditions are not right to enter into another period of high growth, and we will not risk profitability and stability for growth," Stone explained. "Assuming that we are on track with our goals this time next year, we anticipate announcing new store plans of 40 stores in fiscal year '04, 50 stores in '05 and 60 stores in '06. We have the real estate and construction personnel in place today to execute this strategy." Founded as a Boston-area high-fidelity retailer in 1972 by chairman Sandy Bloomberg, the Tweeter Group now encompasses most areas of the US, with 162 stores nationwide, and more than 3800 sales associates.

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