Canton, Mass. - Tweeter Home Entertainment Group said it grew its flat panel sales to 11.6 percent of revenue in the company's fiscal first quarter, but the retailer's business as a whole took it on the chin.
For the first three months, ending Dec. 31, with total revenue decreasing 0.9 percent, to $250 million, from $252 million in the year-ago period. Net income for the first quarter dropped to $5.2 million, from $13.5 million in the same three months in 2001. Comp-store sales declined 10.4 percent in the quarter, excluding the two-unit Hillcrest chain, acquired last March.
These results took place despite high definition and HD-ready TV sets driving the plus side of its business, and flat panel television moving to center stage, the company reported.
'Our short- to mid-term goal is to run the business for profitability and forego store growth in favor of continuing to reduce our debt,' said Jeffrey Stone, president/CEO.
Tweeter's income from operations nose-dived to $9.1 million in the first three months, down from $23 million in the same quarter the previous year.
As a percentage of revenue, operating income in the first quarter decreased to 3.6 percent, from 9.1 percent year over year. This was due to a 340 basis point increase in selling expenses as well as a 160 basis point decline in gross margin, to 34.9 percent. The large increase in selling expenses as a percent of revenue was primarily attributable to missing its sales plan by almost $37 million, said Tweeter.
The retailer, which breached its Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) covenant on its revolving credit facility in its fiscal first quarter, has received a waiver for this covenant. It also has adjusted covenants to match its current forecasts for the balance of the year. A new credit facility of $110 million, replacing an existing facility, is expected to be in place in the next month.
Looking ahead to its second fiscal quarter, ending this coming March, Tweeter expects comp-store sales to be in the range of negative 5 percent to negative 8 percent, which should put revenue in the range of $193 million to $198 million. Tweeter anticipates second quarter gross margin to be down between 80 and 100 basis points, compared with the same quarter in 2002.
'We have responded to business trends by re-forecasting our business plan for the balance of the year and in the process, eliminated roughly $6.6 million in budgeted expenses,' said Stone.
'Although we do not expect to perform at a negative 10 percent comparable store sales level for the balance of the year, if that scenario occurred we believe that we can earn $1 million in operating income and generate $20 million of EBITDA.
'Running the business at flat comps for the balance of the year under our adjusted expense scenario would produce operating income of approximately $19 million and EBITDA of $38 million for the year,' Stone said.