Encouraged by the increase in gross margin and the sales of digital products, mainly digital television, during its fiscal second quarter, Ultimate Electronics reported a 15 percent jump in sales during the three months ended July 31, reaching $117.6 million, compared with $102 million in the year-ago period.
Net income in the second quarter, however, dropped about 20 percent to $1.8 million, compared with $2.3 million in the same three months last year.
Comp-store sales were down 5 percent in the quarter, though gross margin — impacted by the strong sales of digital TV at higher margins than analog TV, as well as slightly higher margins in most of the chain's other categories — increased 30 basis points to 32.7 percent. Selling, general and administrative (SG&A) expenses in the quarter rose 130 basis points to 30.2 percent, due to lower comp-store sales, as well as infrastructure additions necessary for the store expansion planned for this year and next.
Dave Workman, president and chief operating officer, expects margin improvement to continue in the second half, with comp-store growth expected in digital video categories.
Category by category during the second quarter, Ultimate Electronics did 35 percent of its business in television/DBL, compared with 30 percent in the same quarter in 2000. Audio accounted for 20 percent, down from 22 percent in the year-ago second quarter. Video/DVD lost one percentage point to 16 percent, year over year. Mobile was down to a 12 percent share, compared to 13 percent in the same quarter last year. Home office lost one point to 4 percent in the current quarter, compared with the year-ago three months, while share in the other category remained the same at 13 percent in the comparative quarters.
While Ultimate was pleased with the 15 percent sales rise in the second three months, comp-store sales during this period were less than expected. However, the performance of new stores in the chain's newest markets, Phoenix and Oklahoma City, exceeded expectations.
For the six months, sales climbed 16 percent, reaching $232.7 million, up from $197 million in the prior first half. However, net income dropped about 8 percent to $3.5 million, compared with $3.8 million in the year-ago six months. Comp-store sales were off 3 percent for the six months.
Gross margin for the first half edged downward 10 basis points to 31.8 percent, while SG&A rose 70 basis points to 29.3 percent, due to infrastructure additions necessary for store expansion.