News

IPOs are jumping and the Nasdaq is up—some mid-summer economic indicators point toward a recovery, but you wouldn't know it from retail reports. Circuit City, Good Guys, and Harvey Electronics are singing the blues, while discounter Costco is whistling all the way to the bank.

In early July, San Francisco–based Good Guys reported an $8.4 million loss for its first fiscal quarter, ended May 31. The loss was almost twice the $4.6 million net loss reported for the same period last year. Good Guys' first quarter sales slid 14% to $143.4 million, a $171 million decline from the first quarter in 2002, with sales in comparable stores off 14%.

The company closed five stores last year in a streamlining effort, and has made other changes to reduce costs, saving a reported $6 million in general and administrative expenses for the quarter. Even so, its gross profit margin dropped to 27.7%, compared with 28.8% for the same period a year ago. The austerity program has paid off in some respects—Good Guys has improved its available working capital from $11 million to $16 million, but the company is still struggling to make headway in "the challenging economic and promotional environment," according to CEO Ken Weller.

Lyndhurst, NJ–based Harvey Electronics has reported a $48,636 net loss for its fiscal second quarter—that is thousands, not millions. Harvey posted net income of $90,609 in same period a year earlier. Sales for the second quarter, ended May 3, were off 3.5% to $10 million, a small decline from the $10.4 million reported for the second quarter last year. Comparable store sales were also down 3.5%.

For the first half of its fiscal year, Harvey reported a sales increase of 1.6% for a total of $23.1 million, with gross profits a phenomenal 40%, yielding a net income of $372,007. Last year, the company posted $22.8 million in sales for the same period, with gross margins at 39.5%, with net income of $481,057. Harvey is performing "favorably compared to other specialty retailers," according to president Franklin Karp.

Circuit City, North America's second largest electronics retailer, has reported a $43.9 million loss for its first fiscal quarter, ended May 31. Comparable store sales were off 10%, with total sales volume down to $1.9 billion, a 9% drop from the $2.1 billion posted for the same period last year. More than half of Circuit City's loss was a $22.1 million loss in its credit finance operation. The company reported in June that its more-than $1 billion credit operation would post a loss, which was especially damaging in view of the $20.4 million pretax profit it generated in the first three months of 2002. Circuit City's gross profit margin for this year's first quarter was 23.2%, compared to last year's 24.2%.

The Richmond, VA–based retail chain has instituted sweeping changes this year in an effort to achieve profitability, including closing service centers, cutting its sales force, and eliminating sales commissions. Some of the savings have been offset by increased expenses, including $16.5 million in store remodeling and relocation costs, more than twice what was spent during the same period last year.

In June, the company announced a slate of new or recently promoted executives, including elevating regional vice president George Clark to manage Circuit's eastern division, and the promotion of former Musicland vice president Ronald Baime to head of Circuit City's computer, imaging, wireless, video and home audio arenas. Like Good Guys' Weller, Circuit CEO Alan McCollough blamed a tough economy, but said his company would continue to improve the shopping experience for its customers—including putting salespeople through refresher courses in their specialties.

One retail chain that isn't unhappy with the current economy is big-box discounter Costco. Like Wal-Mart, Costco has expanded its electronic offerings to include big-screen high-definition televisions and home theater equipment, betting successfully that consumers would prefer good prices to expert advice. For its third fiscal quarter, ended May 11, Costco's sales were up 11%, with profits up 18% over the same period last year. The increase was largely attributed to an increased inventory of "high-end" products. Costco's sales for the quarter totaled $9.3 billion, with net income reaching$153.8 million, compared to $8.4 billion and $130.4 million, respectively, in the same period a year ago. The Issaquah, WA–based company operates 416 warehouse-style stores, with 307 in the US, and has plans to open 12 new ones by the end of this year.