Good Guys Take a Dive

The West Coast's Good Guys aren't feeling so well. The 79-store chain reported a 31% drop in net earnings for the quarter ending December 31. Gross margins dropped to 23.4% of sales, as compared to 24.7% in the same period the previous year.

Same-store sales were down 2%, an especially disturbing trend for Good Guys stockholders. Consumer-electronics retailers typically do the bulk of their annual sales volume during the period leading up to the winter holidays. The company's stock closed Friday, February 5 at $4.03, far below its 52-week high of $15.75.

Good Guys president Robert Gunst admitted that sales of audio components, DVD players, and digital televsion sets were strong during the holiday shopping period, and ascribed his company's weak performance to slow sales of "commodity-oriented categories of home office products, small-screen TVs, [and] portable audio and stereo systems."

Gunst also laid some of the blame on "aggressive financing offers from some key competitors." He made all the expected noises about "taking the necessary steps to sharpen our cost structure and address our competitive posture in all categories to regain growth momentum and improve our ongoing economics." In other words, Good Guys management will try to figure out what they are doing wrong in the hope of staying in business.

Perhaps they ought to look at the success of their opposite-coast counterpart, the Tweeter Home Entertainment Group, Inc. (see related story), which reported a 44% surge in profits during the same quarter. The two chains have similar formats and serve similar demographics. General economic conditions aren't to blame for Good Guys' sluggish performance---the US economy overall is in the best shape within memory. In addition, California's economy is probably in much better shape than the Mid-Atlantic and New England states served by Tweeter.

Good Guys' total sales for the quarter were $294.1 million, an average of $3.72 million per store. Tweeter Group's 53 stores did $86.8 million, an average of only $1.63 million per store, less than half the volume of Good Guys, but with far higher profitability. One obvious conclusion: Mr. Gunst will have to cut expenses severely to get back in the black.