The Red and the Black

With few exceptions, 2003 has been a slow year for specialty A/V retailers. In late November, both Ultimate Electronics and Tweeter Group reported disappointing figures for their third and fourth fiscal quarters, respectively. New York's Harvey Electronics, however, posted respectable gains given the stagnant economy.

Canton, MA - based Tweeter Home Entertainment Group reported that for the fourth quarter ended September 30, revenue was up 1% at $184.9 million, compared with $183 million in the same period last year. Sales at comparable stores, however, dropped 6.8% during the three months, contributing to a net loss of $10.3 million compared to net income of $516,000 for the same period in 2002. The company ended its fiscal year with a net loss of $11.7 million, compared to net income of $16.7 million in 2002. Tweeter CEO Jeffrey Stone described the preceding 12 months as "a difficult year" compounded by slow sales and lower margins. For the year, revenue was off 1.1%, $787 million vs $796.1 million in the prior year. During the same period, the company opened 12 new stores and closed five.

Flat-panel televisions were strong sellers for Tweeter in the fourth quarter, accounting for 17.4% of total sales. Of those, 77% were plasma displays and the remaining 23% were LCDs. On a dollar basis, plasmas were 46% of the total and LCDs 54%. The company also did well with projection television, sales of which grew 32% in the fourth quarter, accounting for 21.1% of total sales. For the same period last year, projection TV was 17.4% of the total. Reflecting the old wisdom that in a doubtful economy, consumers are more likely to have older equipment repaired, Tweeter's service operation contributed 3.1% of the quarterly sales total, with labor revenue up 25%. Tweeter also has a 20% stake in audio manufacturer Tivoli. The "Tivoli Designs" line of loudspeakers is a Tweeter house brand.

Tweeter's overall numbers have been hampered by excess discontinued inventory, according to a late November report. The company's goal is to reduce discontinued and open-box goods to less than 8% of the total.

Denver's Ultimate Electronics posted negative numbers for its third fiscal quarter ended October 31, with a net loss of $6.2 million, compared with a net profit of $422,000 in the same period in 2002. Sales for the quarter dropped 10% to $159.7 million, compared with $177.8 million in the same period a year earlier. Ultimate abandoned computers during the third quarter and pulled in less than expected from its service business. Company president Dave Workman attributed the decline in business to slow store traffic and a misguided "Experience More" advertising campaign. Comparable-store sales for the quarter were off 10%, but even so, the company posted a 2% increase in sales for the previous nine months, hitting $469.6 million, compared to $462 million for the same period in 2002. For the nine-month period, Ultimate posted a net loss of $9.5 million.

Bright spots for Ultimate during the third quarter included television and direct broadcast satellite (DBS) gear, which accounted for 49% of the company's quarterly sales total category. Flat-panel TVs were 9% of total sales, with audio accounting for 16%. "Video/DVD" contributed 12% and mobile electronics 9%. Ultimate reported slow sales at its new Dallas stores, but a brisk pace in custom installations in its Austin and Kansas locations. Ultimate has a separate division that deals exclusively with homebuilders in designing and installing entertainment systems in new homes. The company has dedicated a multimillion-dollar budget to winter holiday advertising, including a glossy mail-out catalog. Like Tweeter, Ultimate hopes to get its discontinued inventory down to a manageable level, with a goal of 6-8% of total inventory.

Business is looking up for New York metropolitan retailer Harvey Electronics. The Lyndhurst, NJ-based 9-store chain reported annual net sales of $42.4 million for its fiscal year ended November 1, a 2.7% increase over the 2002 fiscal year. Comparable-store sales were up slightly for the year, by less than 1%. Big sellers at Harvey's included home-theater systems, digital video products, and custom installations. Company president Franklin Karp said the results were "very gratifying" in view of losses suffered by other A/V specialty chains.

Best Buy, North America's largest electronics retailer, is reportedly doing well with its two Manhattan stores, the first one a big-box location in Chelsea and the second one in a renovated 30,000 sq. ft. former HMV store at the corner of Lexington Avenue and East 86th Street. The Upper East Side store includes three open-air home-theater demo rooms and an in-aisle loudspeaker comparator system operated by a touch panel. The store also features CD listening kiosks where music fans can sample recent releases.

On the West Coast, San Francisco-based upscale chain The Good Guys announced September 29 that it had agreed to be acquired by computer retailer CompUSA. The $55 million deal will make Good Guys a wholly owned subsidiary of the computer specialist. The Good Guys operates 71 stores in four western states. In June, CompUSA owner Carlos Slim reportedly made an unsuccessful attempt to buy Circuit City.

In November, CompUSA announced plans to make room in its stores for flat-panel televisions, home-theater receivers, and loudspeaker systems, in keeping with the growing trend toward convergence of computers and consumer electronics. The Good Guys acquisition fits that trend perfectly, said CompUSA CEO Hal Compton. "The acquisition of Good Guys is an exciting piece to our long-term growth game plan," Compton explained. "We want to offer the seamless technology solutions our customers' lifestyles demand and, with The Good Guys' solid reputation in delivering high-end entertainment technology, our offering just becomes that much stronger. The Good Guys owns a niche that's highly complementary with our own."

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