Good Guys Reports $8.4M Loss, Lower Sales During Fiscal 1st Qtr.

SAN FRANCISCO— Specialty retailer Good Guys has been hit by a double-barreled blast of lower earnings and sales in its fiscal first quarter.

The company reported a net loss of $8.4 million for the three months, ended May 31, nearly double the $4.6 million net loss recorded in the year-ago period.

As reported in mid-June, first quarter sales dropped 14 percent, to $143.4 million, down from $171 million in the same three months in 2002 (TWICE, June 23, p. 4). Comp-store sales for the first quarter decreased 14 percent.

The company's sales in the first quarter of last year included sales from five stores that were closed during 2002 as part of the retailer's restructuring program.

"The impact of the challenging economic and promotional environment on our sales and margins kept us from taking advantage of the significant leverage our lowered cost structure is expected to provide," said chairman/CEO Ken Weller.

Good Guys gross profit margin for the quarter slid 110 basis points, to 27.7 percent, compared with 28.8 percent year-on-year. The drop reflects increased promotional expenses, higher sell-through of discontinued products and increased service costs, according to the retailer.

Selling, general and administrative expenses (SG&A) decreased by more than $6 million in the first three months, to $44.9 million, compared with $51 million in the same quarter a year ago. However, SG&A, as a percentage of sales, increased 150 basis points, to 31.3 percent in the first quarter, up from 29.8 percent year over year. Good Guys said the percentage climb was due to lower sales volume.

Looking at the positive side of the quarter, Weller said, "Our success at managing our working capital allowed us to end May with excess availability under our bank line of more than $16 million, compared with $11 million at the same time last year."

He added, "This improved working capital position, coupled with continued cost containment efforts will help support our business and enable us to focus resources on driving sales and improving margins."

During the first quarter, Good Guys reduced its merchandise inventory to reflect current sales volume. Also, the retailer's efforts to improve gross margin return on investment, through SKU rationalization and more effective supply-chain management, is also evident in its lower inventory levels.

Good Guys said it expects negative comp-store sales to continue through the first half of the current fiscal year.