Q3 A Mixed Bag For CE Leaders

New York— The challenging retail environment took a toll on third quarter results for Top Five CE merchants RadioShack and Sears, while online upstart Amazon.com posted solid growth in the sector.

Claiming weak sales in a difficult selling environment, RadioShack posted revenue of $1.08 billion in the third quarter, a dip of 5 percent from the $1.14 billion recorded in the year-ago period. Comp-store sales for the three months decreased 4 percent.

Net income for the third quarter ended Sept. 30 was $43.8 million, including a charge for job cuts, down 43 percent from the $77.1 million recorded in the same three months in 2000. Excluding the charge related to the reduction in the retailer's labor force, earnings in the third quarter were $52.1 million, down 32 percent from the $77.1 million reported in the third quarter last year.

"Though the sales environment was difficult, our gross margins are heading in the right direction, and [selling, general and administrative] SG&A expenses are flat," said Leonard Roberts, chairman/CEO. "We view these trends as positive as we enter the fourth quarter."

Meanwhile, strong growth in major appliances was not able to offset declines in other hard goods and soft goods categories, forcing Sears, Roebuck and Co. to post a 1.8 percent third-quarter decline in revenue for its Retail and Related Services segment. Sales dropped to $7.33 billion, down from $7.47 billion in the same three months in 2000.

The gross margin rate in the Retail and Related Services segment improved by 30 basis points to 25.6 percent in the third quarter ended Sept. 30, while selling and administrative expenses climbed 10 basis points to 22.1 percent of sales. The retail segment posted operating income of $82 million, compared with $69 million in the same quarter last year.

Sears, which has announced plans for nearly 5,000 salaried job cuts, expects to double profits in its Retail and Related Services segment by 2004, saving $600 million. The retailer anticipates that cost-cutting measures will increase profits by more than $400 million in the next three years. However, the company said there will be related charges, but did not release amounts.

Overall Sears sales rose to $9.75 billion in the third quarter, compared with $9.59 billion a year ago. Net earnings were $262 million, down from $278 million year over year.

By contrast, business was bubbling for e-tail gorilla Amazon.com, at least within its U.S. Electronics, Tools and Kitchen segment. Sector sales climbed 6 percent in the third quarter, hitting $103.1 million, up from $97.6 million in the third quarter of 2000. This segment includes sales of consumer electronics, computers, cameras and cellphones.

Gross profit in Amazon's U.S. Electronics segment climbed 49 percent in the third quarter ended Sept. 30, reaching $13.3 million, compared with $8.9 million in the year-ago three months. The segment had a $33.1 million pro forma loss from operations, cut nearly in half from the $60.8 million registered in the year-ago third quarter.

Amazon's largest product segment, U.S. Books, Music and DVD/Video, recorded sales of $351.4 million in the third quarter, a decrease of 12 percent from the $399.9 million registered in the same quarter in 2000. This segment includes DVD and video products.

Gross profit in the U.S. DVD/Video segment dropped 14 percent in the third quarter, hitting $93.4 million, down from $108.7 million in the same three months last year. Pro forma income from operations in the segment climbed to $26.2 million in the third quarter, up from $24.7 million in the year-ago three months.

Gross margin percentage in the U.S. Electronics segment improved 400 basis points in the third quarter, to 13 percent, from 9 percent in the year-ago period. Gross margin percentage for the DVD/Video segment remained at 27 percent in the third quarter, year over year. Amazon said overall company gross margin is expected to be between 22 percent and 25 percent of sales in the fourth quarter.

The Electronics segment as a percentage of Amazon's overall sales mix in the third quarter was 16 percent, an increase of 100 basis points from the 15 percent recorded in the third quarter of 2000. However, the DVD/Video segment as a percentage of the company's overall sales mix dropped 800 basis points to 55 percent in the third quarter, down from 63 percent in the same three months last year.

Overall sales at Amazon.com were somewhat flat in the third quarter, coming in at $639.3 million, compared with $637.8 million in the year-ago third quarter. The company expects sales to be flat to up 10 percent in the fourth quarter, compared with the same three months in 2000, hitting between $670 million and $1.07 billion.

The company hopes to reach a goal of pro forma operating profitability, excluding many costs, by this year's fourth quarter.