Tweeter Sales Dip 1%, Earnings Slide

Canton, Mass. — Revenue at the Tweeter Home Entertainment Group essentially was flat in the retailer's fiscal second quarter, coming in at $184.7 million, down 1 percent from the $185.8 million posted in the same three months last year.

To deal with its latest down quarter, Tweeter announced it will close 19 stores and reduce its total workforce by about 6 percent, moves that will cost the company between $25 million and $30 million, mostly in the third quarter this year. (See story, this page.)

Operating loss for the second quarter, ended March 31, increased to $7.9 million, from $7 million in the same three months in 2004. As a percentage of revenue, operating loss from continuing operations was 4.3 percent for the three months, compared with 3.8 percent year-on-year. Comp-store sales dropped 4 percent. Joe McGuire, interim CEO, said sales were off plan for the quarter.

Net loss from continuing operations ballooned to $27.1 million, from $4.4 million in the same quarter a year earlier. This year's net loss includes a non-cash impairment charge of $22.2 million.

“We did not achieve our internal plans for profitability for the quarter and fell about $2 million short of our internal RBT goal,” said McGuire, who was pleased with gross margin trends and the continued growth of the company's service business. “By rationalizing our store base, we move much closer to a return to profitability.” The retailer had a 1.5 percentage point increase in gross margin in the quarter, but also a 4 percentage point increase in selling expenses.

For the six months, total revenue hit $446.7 million, up from $436.6 million. The retailer registered a net loss from continuing operations of $21. 9 million, compared with net income from continuing operations of $877,000 in the same period last year.

Tweeter moved into the red for the six months, recording a net loss of $22.4 million, compared with net income of $551,000 in the same six months the prior year.

In a truncated conference call, McGuire said that sales of flat panel and rear projection TVs both accounted for 24 percent of total revenue last quarter — with flat panel increasing and rear projection declining as a percentage of sales — while tube TVs now represent less than 2 percent of total dollar volume.

McGuire noted that revenue from installation labor was up 52 percent, and that raids by Best Buy to staff its new in-store Magnolia Audio Video shops haven't impacted its own installer recruitment efforts. He added that Best Buy's plan to also open freestanding Geek Squad stores “validates our strategy of providing a higher level of service in the home.”

On the store front, McGuire said that management is “very excited” by the early results of its new prototype lab store in Las Vegas, where tickets are running 50 percent higher than the company average.

—Additional reporting by Alan Wolf