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Harvey Sales Off 10.2%, Comps Slide 11.6%

8/17/2005 01:57:00 PM Eastern

Lyndhurst, N.J. — Reduced retail store traffic resulting in lower video sales pushed down fiscal third-quarter sales at Harvey Electronics by 10.2 percent, coming in at $9 million, compared with about $10 million in the year-ago period. Comp-store sales for the quarter, ended July 30, dropped about $1.2 million, or 11.6 percent.

The high-end, regional specialty chain, which emphasizes its custom-installation business, said video sales have declined as a result of reduced DLP, CRT and DVD sales, and to a lesser extent, from price compression, an overall 2 percent reduction of flat-panel unit sales and certain product shortages.

“We are obviously disappointed with the sales results to date for fiscal 2005,” said Franklin Karp, president/CEO. “Comparable store sales have declined since the end of January 2005. We believe consumers are now more price sensitive relating to their flat-panel purchase, and we believe prospective buyers are delaying their decision as they expect flat-panel prices to significantly decline further,” he said.

“We have experienced flat-panel growth in larger-size plasma and LCD televisions, while reporting declines in smaller screen sizes,” continued Karp. “Additional sales of larger-screen flat panels have provided additional installation opportunities for the company.”

Although Harvey reported declines in retail store traffic, it said its custom installation business has remained strong in both overall dollars and as a percentage of net sales.

Custom installation sales, including equipment and labor, “remained quite stable,” and accounted for 62.5 percent of net sales for the first nine months of the fiscal year, compared with 59 percent year-on-year.

As a result of its strong custom installation business, inclusive of a 13.5 percent rise in labor sales, coupled with the strong attachment of higher margin accessories sales, overall Harvey gross profit margin in expected to improve for the first nine months and remain stable for the third quarter, compared with the same periods a year ago, said the chain.

Karp said Harvey expects to report a loss for the third quarter and the nine months in a later filing. The retailer has been proactive in reducing payroll and other costs, while cultivating service offerings, said Harvey. It also expects to introduce a new ad campaign in the latter part of the fourth quarter. “Our marketing expenditures will not be diminished in fiscal 2005,” said Karp, “and we will endeavor to better target our customers through direct mail and e-mail promotions among other media choices.”

For the nine months, net sales decreased 6 percent to $30.8 million, while comp-store sales dropped 6.6 percent, or $2.2 million.

Karp added that consumer uncertainties and confusion regarding current technologies continue to be a problem within the industry. “As video products are affected by price compression, it is an opportunity for Harvey to attach additional higher margin audio components, accessories and labor to build the perfect home theater.”

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