Lyndhurst, N.J. — Harvey Electronics announced a net loss of $3.2 million for its fiscal year, ended Oct. 28, compared with a net loss of $830,000 for fiscal 2005. The company’s pretax loss for the year was $1.88 million as compared with a pretax loss for the prior year of $830,000.
In a release, Martin McClanan, Harvey’s interim CEO attributed the company’s weak profit performance to the “challenging conditions Harvey faced prior to the infusion of the $4 million of new capital in November, led by Trinity Investment Partners.”
More specifically, the company credited its losses to lower sales in the third and fourth quarters resulting from flat-panel TV pricing compression, competitive pressures and a 27 percent decline in advertising expenditures for the year.
Joseph Calabrese, Harvey’s chief financial officer, made reference to the fact that the organization’s business was migrating from traditional retail sales to custom installation (CI) projects, noting that in fiscal 2006 CI projects continued to increase as a percentage of gross sales and accounted for 64.7 percent of gross sales as compared to approximately 62.8 percent of gross sales for fiscal 2005.
Calabrese also reported that Harvey’s gross profit margin for fiscal 2006 increased to 42 percent from 41.7 percent in fiscal 2005 “primarily due to $260,000 in promotional allowances that were reflected as an adjustment reducing cost of goods sold in the fourth quarter, due to a change in the company’s advertising strategy.” Excluding that adjustment, he said the gross margin was approximately 41.2 percent, a slight decline compared to fiscal 2005.
Calabrese said the company’s cost-reduction program had helped its selling, general and administrative expenses to decrease by 6.6 percent. However, its interest expense increased by $162,000 or 70 percent in fiscal 2006 from fiscal 2005, primarily as a result of increased borrowings and higher interest rates.
Looking ahead, McClanan, said that Harvey is planning to increase advertising expenditures by nearly 50 percent in 2007 and that it plans to augment in-store merchandising with new product offerings intended to appeal to high-end customers. He said “The full impact of our new strategies will, however, not happen overnight. While we are starting to see improved store traffic from our initial advertising and sales efforts, we expect the negative impact of flat panel price compression to continue to hinder the company from reaching profitability in the first quarter of 2007. Therefore, turning around Harvey will require the continued patience and support of our business partners and our shareholders as these initiatives are either only a few weeks old or have yet to be fully implemented.”
For information on Harvey’s Q4 findings, click here.