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Tweeter Sales Move Up 3%

4/27/2006 10:37:00 AM Eastern

Canton, Mass. — Revenue at the Tweeter Home Entertainment Group increased 3 percent in the retailer’s second fiscal quarter, climbing to $187.2 million from a year-ago $182 million.

Revenue from continuing operations included sales from 154 stores this quarter, compared with 171 locations in the same quarter in 2005. Comp-store sales jumped 6 percent.

Income from continuing operations in the quarter, ended March 31, moved into the black for Tweeter, coming in at $874,000, compared with a loss of $7.2 million in the same period last year.

Net income reached $332,000 for the second quarter, compared with a loss of $27.4 million in the same three months the prior year. The previous year’s quarter included a non-cash impairment charge of $22.2 million.

Gross profit margin for the quarter improved 2.2 percentage points, while expenses declined by 2.4 percentage points.

“The improvement in gross margin was the result of continued growth of the installation and service businesses, improved product margins and increased vendor funding year-over-year,” said Joe McGuire, president/CEO. “Solid expense control resulted in improved leverage on our SG&A expenses,” he said.

McGuire noted that long-term debt decreased $22 million during the course of the quarter, and inventory dropped by $18 million from the first quarter. Inventory turns improved 0.2 of a percentage point, compared with last year, he said,

For the six months, Tweeter revenue increased 3 percent, hitting $453.8 million, up from a year-earlier $440.3 million. Comp-store sales rose 6 percent.

Income from continuing operations for the six months reached $16.2 million, compared with $2.3 million in the same period last year.

Net income was $14.6 million for the six months, compared with a net loss of $22.4 million in the same six months the prior year. The year-ago period included a non-cash impairment charge of $22.2 million.

In a conference call, McGuire noted that sales of flat-panel TVs, a key revenue driver, were up 30 percent in dollars and 53 percent in volume during the quarter. Moreover, revenue from home installation services increased 20 percent year-over-year, and now represents 6.2 percent of Tweeter’s total revenue, while sales of home installation accessories including remote controls and cables grew about 25 percent.

McGuire added that flat sales of component audio represented a “significant trend change after six to seven years of solid declines, sometimes in the double digits,” and that some merchants at Tweeter are anticipating category growth.

Tightness in flat-panel supply is expected to abate by August, noted senior VP/chief merchandising officer Philo Pappas, while Judy Quye, retails sales and operations senior VP, reported growth in margins and comparable store sales at the company’s two test format locations. “We’re very much on the right track with the new prototypes,” she said during the call.

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