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Ultimate Electronics Q2 Loss Widens

8/28/2003 08:20:00 AM Eastern

Denver - Faced with a fiscal second quarter decline in store traffic, softened somewhat by growth of digital projection and flat-panel televisions, Ultimate Electronics reported a wider net loss in the three months, coming in at $1.8 million, compared with a loss of $929,000 in the year-ago period.

The retailer, which earlier reported a 9 percent increase in sales for its fiscal second quarter, to $154.2 million, up from $142 million in the second quarter of 2002, claimed a widening market share in television and other core categories. Yet, Ultimate, which said it has found overall industry performance to be a challenge, registered a 10 percent decline in comp-store sales in the second quarter, as reported earlier.

'The first six months have been challenging for our company, and we continue to concentrate our efforts on increasing sales and gross profit margin, while reducing expenses,' said Ed McEntire, CEO.

Gross profit margin in the second quarter, ended July 31 reached 33.9 percent, 10 basis points above the 33.8 percent recorded in the same three months last year. However, selling, general and administrative (SG&A) expenses climbed 90 basis points, to 35.8 percent, from 34.9 percent year-on-year. Ultimate blamed the increase in SG&A to rising fixed general and administrative expenses and rising insurance and training costs, offset by lower pre-opening expenses and reduced advertising monies.

'For the first 26 days of the third quarter, comp-store sales have shown improvement [over the second quarter] and are currently down 5 percent. Our internal plans call for a continued improvement in gross profit margin in the second half of the year,' said McEntire.

Ultimate remains on schedule to open seven new stores in the next three months and to 're-grand open' its remaining Audio King locations as Ultimate Electronics. This coincides with the opening of its seventh store in the Minneapolis/St. Paul market.

During the second quarter, the retailer reported that its television/DBS category, the chain's largest, claimed 42 percent of overall sales, up from a 37 percent share year over year. Losing ground during the second three months were the video/DVD category, down to a 13 percent share, from 16 percent; mobile, down one percentage point, to 11 percent; and home office, coming in at a 3 percent share, compared with 4 percent in the year-ago period. The audio category was unchanged, at an 18 percent share of second quarter sales. The 'other' category also remained unchanged, at 13 percent.

Ultimate said it plans to substantially complete its exit from the computer category in the third quarter, resetting its stores with products expected to increase store traffic — namely Playstation, portable electronics and cordless phones. In addition, the retailer plans to test a number of concepts related to the sales of DVD software. These are designed to increase store traffic, customer retention and incremental revenue opportunities.

For the third quarter, Ultimate anticipates comp-store sales to be down in the mid-single digits, with total sales up slightly. In the fourth quarter, it expects comp-store sales to be down in the low single digits, with total sales up about 10 percent, due to the planned opening of six new stores in the third quarter and one in the fourth.

In the six months, the retailer reported a net loss of $3.2 million, compared with a loss of $1.3 million in the year-ago period. The loss for the six months in 2002 includes a $1.6 million charge. Comp-store sales were down 9 percent in the six months, while overall sales increased 9 percent, to $309.9 million, up from $284.2 million year over year.

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