Tweeter's Q3 Sales Lower, Loss Widens

CANTON, MASS.— Specialty retailer Tweeter Home Entertainment Group recorded lower revenue, comparable store sales and a widening loss in its fiscal third quarter.

Tweeter sales for the three months, ended June 30, slipped 1 percent to $168.6 million from $170.4 million in the year-ago period. Comp-store sales were off 2 percent in the third quarter.

The retailer reported increases in both its operating and net loss for its third quarter. Its operating loss climbed to $9.6 million, up from a loss of $6.8 million in the same three months in 2003, while its net loss moved up to $6.1 million, compared with a loss of $4.1 million in the same quarter a year ago.

As a percentage of revenue, Tweeter's operating loss was 5.7 percent, compared with an operating Tweeter's operating loss was 5.7 percent, compared with an operating loss of 4 percent year-on-year. This was primarily due to a slight increase in gross margin, nearly a 1-point increase in selling expenses and a near 2-point rise in corporate expenses.

The increase in gross margin can be attributed to additional vendor allowances received, while the rise in selling expenses can be traced to an increase in compensation expense associated with building its in-home installation infrastructure, occupancy costs and vehicle expenses, said Tweeter.

However, the retailer is enjoying some better results in the current period, with comp-store sales through July up about 2 percent, and comp expectations for the quarter ending in September at between flat and up 2 percent.

"Our team continues to make great strides improving the balance sheet," said Jeff Stone, president/CEO. "During our fourth fiscal quarter we will introduce refinements to our marketing program, work out any bugs and be prepared to enter fiscal 2005 with a strong marketing voice — something that has been missing for the last two years."

Net inventory at the end of the third quarter was $114 million, compared with the year-earlier inventory-ending level of $133 million. This resulted in about a one-half-point improvement in turns year-over-year, and the retailer expects to finish the fiscal year with turns near four times.

In a conference call, Stone and Joe McGuire, chief financial officer, assured analysts the bottom line is being bolstered by continued debt-reduction, cost cutting, supply chain improvements and fatter margins.

Indeed, attachment rates of audio products and service contracts hit record levels during the third quarter, which will help offset expected declines in the average selling prices and margins of flat and microdisplay TVs this holiday season, as retails on 42-inch EDTV plasma panels hit $3,000, McGuire said.

"We're seeing an increase in supply, an increase in suppliers and an increase in the number of SKUs from those suppliers," continued McGuire. "We'll just have to see how it all shakes out in the fall."