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Harvey Q3 Profit Results Turn Black

9/18/2003 09:38:00 AM Eastern

Lyndhurst, N.J. - Energized by growing consumer demand for digital video products, home theaters and related custom installation services, specialty retailer Harvey Electronics reported a return to the black in its fiscal third quarter.

Harvey, which specializes in custom installation of high quality home theater audio and video products in the New York metropolitan area, said net income for the three months, ended Aug. 2, hit $13,000, compared with a net loss of $80,923 in the year-ago period.

Earnings before interest, taxes, depreciation and amortization (EBITDA) soared 60.3 percent in the third quarter, to $303,000, up from $189,000 in the same period in 2002. The company's pre-tax income for the same timeframe jumped nearly 119 percent, reaching $23,403, compared with a pre-tax loss of $125,923 year-on-year.

Sales for the nine-unit chain, as reported, increased 5.1 percent in the three months, hitting $10.1 million, up from $9.6 million in the same quarter a year ago.

Buoyed by what he cited as an 'industry leading' gross profit margin of 41.2 percent in its third quarter, Harvey president Franklin Karp lauded his company's strong profit results. 'This is particularly impressive and important, as Harvey has not generated a profit in a third quarter in recent memory, as the summer months are historically a slower retail period for us.'

Expanding on the 5-percent-plus sales rise in the third quarter, Karp said, 'We have also seen a strong rebound in consumer spending since our second quarter, which ended in April. Our August and September sales to date continue to outpace the prior year.' Digital video, home theater products and custom installation continue to drive the business, he said.

Harvey's 41.2 percent third quarter gross profit margin increased 170 basis points above the 39.5 percent figure recorded in the year-ago three months. This improvement was primarily due to the continued growth and improving efficiencies in the retailer's custom installation business. At the same time, the chain said it also had become more proficient in selling higher margin extended warranties as well as furniture, cable, wire and other accessories.

In the first nine months, custom installation services accounted for about 54 percent of Harvey net sales, up from about 50 percent in the same period a year earlier. These sales generally yield higher gross profit margins and stronger net profitability, compared to normal retail store sales, said the retailer.

Along with gross profit margin improvement, Harvey said it has continued to strictly manage its selling, general and administrative (SG&A) expenses. Even so, SG&A did comparably increase in the first nine months, up 3.4 percent over the same period in 2002. This was due primarily to increased payroll and payroll-related costs, occupancy costs, professional fees, insurance expenses and various store-operating expenses. A decrease in management incentive bonuses and depreciation and amortization expenses somewhat offset the increases.

Sales for the nine months climbed 2.6 percent, hitting $33.2 million, up from $32.4 in the same nine months a year ago. Comp-store sales were about flat for the nine months.

Net income for the first nine months reached $385,409, down from $400, 134 year over year. EBITDA was $1.5 million in the period, compared with $1.6 million a year ago. Pre-tax income hit $635,000 in the nine months, down from $675,000 in 2002.

Gross profit margin for the nine months rose 90 basis points, to 40.4 percent, compared with 39.5 percent in a similar period the previous year.

Harvey noted its fiscal nine months this year had one additional week, compared with the same period a year ago.

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