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Tweeter Reports Reduced Q3 Loss

8/07/2006 02:00:00 AM Eastern

Tweeter posted a net loss of $14.4 million for its third fiscal quarter, ended June 30, down from a $31.9 million loss during the prior-year period.

Last year's losses included a $16.9 million restructuring charge related to 13 store closings, as well as a $9.9 million gain on the sale of investments.

The store closings also impacted net sales, which fell 4 percent to $159 million this past quarter, although same-store sales grew 2 percent.

Gross profit was also up — by 260 basis points to 40.6 percent — and selling, general and administrative expenses (SG&A) decreased by $2 million. Still, expenses were higher than planned, president/CEO Joe McGuire said, due to professional fees associated with Sarbanes-Oxley compliance, higher insurance costs and increased vehicle and maintenance costs.

Sales for the quarter remained constrained by limited flat-panel supplies, particularly in 50W-inch plasma displays, McGuire said. Broken out by month, sales in April were flat, impacted by a decision to suspend all marketing activities during what is traditionally the slowest month of the year; May was up 2 percent; and June sales surged nearly 5 percent as “we got a slug of 50-inch panels in,” he noted.

Flat-panel TV and custom installation remained the company's core sales-driving category with flat-panel representing 32 percent of retail revenue during the quarter and labor accounting for 7.6 percent of total revenue, up from 6.6 percent a year ago. Flat-panel sales were up 45 percent in units and 28 percent in dollars during the period, and margins grew slightly despite a 12 percent decline in average selling price.

McGuire projected that declines in the average selling price of flat-panel TVs would accelerate industrywide, to 20 percent for the year, after supply constraints end in August. The impact on margins will be mitigated as consumer preference migrates from 42W-inch panels to 50W-inch and larger sizes, including a new 58W-inch plasma display tier from Panasonic that's shipping now.

Conversely, Tweeter's rear-projection TV business is “deteriorating faster than expected,” McGuire said, with sales down 10 percent in March and 16 percent for the quarter, along with significant margin declines. “The customer is really choosing flat-panel,” he said, although rear-projection sets still account for 13 percent of Tweeter revenue.

Elsewhere, the company is currently operating three new-format stores and three lab stores with modified operating models. The new-format prototypes, located in Las Vegas, Tysons Corner, Va., and Mission Viejo, Calif., are delivering improved margins, twice the company average in labor and remote-and-control revenue, and a “nice lift in loudspeakers,” said Judy Quye, retail sales and operations senior VP. The three modified stores, located in Oakbrook, Ill., Burlington, Mass., and Tampa, Fla., feature select elements from the prototypes, including a design center, concierge service and a revamped training and hiring model, she said. The changes are too recent to gauge results.

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