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Tweeter Comps Rise 10% To 5-Yr. High

12/06/2005 09:41:00 AM Eastern

Canton, Mass. — For the first time in five years, specialty retailer Tweeter Home Entertainment Group reported a quarterly double-digit comp-store sales increase, with comps jumping 10 percent in the fiscal three months, ended Sept. 30.

The company reported that nine of its 11 regions experienced positive sales growth in the period.

Revenue from continuing operations climbed 9 percent in the fourth quarter, hitting $188.3 million, up from $173.3 million in the year-ago period.

However, Tweeter posted a loss from continuing operations before income taxes in the quarter, coming in at a negative $16.3 million, which was a 3 percent increase over the loss of $15.8 million recorded in the year-ago period.

Net loss for the fourth quarter climbed to $20 million, compared with a net loss of $12.6 million in the same three months in 2004.

In reporting its five-year comp-store rise, Joe McGuire, president/CEO, said the "broad geographical spread of this growth affirms our customers’ acceptance of our value-added business proposition, and points to the success of our rejuvenated marketing programs." Tweeter has been promoting its business based on service, not price, as part of its value-added program.

Gross margin declined from 39.3 percent in the fourth quarter, down to 38.4 percent, primarily due to higher charges for discontinued and obsolete inventory.

Selling expenses declined as a percent of revenue, as improved leverage on marketing expenditures was partially offset by rate-driven increases in credit card fees, said Tweeter. The dollar increase in selling expenses reflected higher commissions due to sales growth.

In the fourth quarter of 2004, Tweeter recorded a $5.8 million tax benefit from the operating loss, compared with a $3.1 million tax expense in the same three months this year. As a result, the net loss from continuing operations increased to $18.5 million in the current fourth quarter, up from a loss of $9.8 million year-on-year.

"This was an exceptionally challenging year — we made tough decisions to close stores and cut costs, and we invested heavily in our infrastructure. We will begin to see results from these actions in fiscal 2006," said McGuire.

As an example of its value-added, rather than price, philosophy, Tweeter returned to the airwaves in the second half in key markets with an aggressive radio and TV campaign featuring Chris, the company’s director of new technology training, who, according to the chain, is a compelling spokes-personality, whose enthusiasm and expertise resonate with its customers.

For the full year, Tweeter revenue rose 4 percent to $795.1 million from $765.3 million, while its net loss grew to $74.4 million, from a loss of $18.2 million the previous 12 months. Net loss from continuing operations increased to $63.6 million from a year-ago $14.3 million.

Gross margin for the 12 month improved from 38.9 percent, to 39.4 percent, while selling expenses for the period increased 11 percent, due largely to increased expenditures and insurance expenses.

Under the retailer’s store closing program, 13 stores were determined to be part of continuing operations, with the remaining six classified as discontinued operations. Exit costs for the 13 stores considered part of continued operations were treated as restructuring charges and totaled $16.5 million for the year.

The comparable exit expenses associated with the six stores classified as discontinued operations totaled $6.3 million. Including these expenses, the loss from discontinued operations totaled $10.8 million for the 12 months, compared with a $3.9 million loss in 2004, net of taxes, primarily related to the 2005 store closing program.