Ultimate's Fiscal 3d-Quarter Income Cut

Denver— The slowing economy and events of Sept. 11 were a big jolt for specialty home entertainment and consumer electronics retailer Ultimate Electronics during the company's fiscal third quarter.

Although sales climbed 13 percent, to $132.8 million during the three months ended Oct. 31, compared with $117.2 million in the year-ago period, net income was reduced by about half, to $1.7 million, down from $3.4 million in the same period last year. Comp-store sales dropped 6 percent in the quarter.

The continuing shift in merchandise mix toward television and DVD, away from the home and mobile audio product categories, adversely impacted gross margin during the third quarter, reducing this by 40 basis points, from 32.2 percent in the same period in 2000, down to 31.8 percent.

Store expansion costs as well as lower comp-store sales, hit selling, general and administrative (SG&A) expenses in the third quarter. These climbed to 29.7 percent, 220 basis points higher than the 27.5 percent reported in the year-ago period.

Ed McEntire, CEO of the chain, said that during the first 24 days of its fiscal fourth quarter, "revenue has increased by 22 percent over the previous year and comp-store sales are currently running even with the prior year. The comp-store sales number has improved significantly from October, which was down 9 percent."

In spite of the tough economic conditions, digital products continued to grow as an overall part of Ultimate Electronics' business during the third quarter. Digital TV unit sales increased by 80 percent, to over 12,500 sets during the three months. As a result, the overall average selling price for all TVs increased to over $1,250, with digital TVs maintaining an average selling price in excess of $3,000.

DVD sales increased on both a total company and comp-store basis during the third quarter. Progressive scan models of DVD accounted for 34 percent of all units sold and over 40 percent of all dollars in the category. The average selling price for DVD players was $279 during the third quarter, compared to the industry average of about $145, said the retailer.

For the nine months, Ultimate Electronics enjoyed a 16 percent increase in sales, to $365.5 million, compared with $314.2 million in the year-ago period. Comp-store sales were off 4 percent for the nine months.

The company reported net income of $5.2 million for the nine months, down from $7.2 million in the same nine months in 2000. Gross margin for the nine months fell 20 basis points, to 31.8 percent, while SG&A expenses increased 130 basis points, to 29.5 percent.