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December Sales Sank For CE Dealers

Las Vegas – CE retailers posted poor sales results for December, citing weak consumer demand and diminished store traffic.

Among those reporting this week were Circuit City, whose December net fell 5 percent to $1.74 billion while same store sales slipped 6 percent.

Chairman/CEO Alan McCollough attributed the declines to a tough comparison to the year-ago period, when the chain enjoyed a 10 percent spike in total volume.

He said sales were also impacted by a more promotional environment, a slowdown in traffic and weak demand for DSS, PC hardware and wireless products.

McCollough said volume improved in the days immediately before and after Christmas Day, and that strong holiday sellers included digital projection TV, plasma and LCD displays, PVRs, mobile video, satellite radio and MP3 players.

But the last-minute uptick didn’t offset soft post-Thanksgiving sales, and inventories are expected to remain above plan through February.

The company also announced a $200 million stock buy-back, representing 13 percent of outstanding shares, that helped boost Circuit City’s stock price in the wake of its sales report.

Principal Circuit City competitor Best Buy is expected to report its December results this morning.

The holiday downturn was felt more sharply by Tweeter Home Entertainment Group, whose total revenue fell 1 percent to $250 million for its first fiscal quarter ended Dec. 31, 2002, while comp sales sank 10.4 percent.

‘Sales were weak in the quarter and particularly weak in December,’ said president/CEO Jeff Stone. ‘Although sales were somewhat better the week after Christmas, they were not dramatically better.’

The slowdown resulted in an inventory overhang of $28 million, which the company plans to work down during the current quarter by reducing its open-to-buy dollars this month and next. CFO Joe McGuire added that Tweeter will also likely fail a loan covenent triggered by lower than expected earnings, and is currently seeking a waiver from its lender.

Stone added that Tweeter will open four fewer stores than planned during its current fiscal year, for a total of 12, due to ‘the current economic climate.’

The story was similar for former PRO Group member Ultimate Electronics, whose comp sales slipped 10 percent during November and December. However, the addition of 12 new stores in 2002 helped propel total volume 13 percent to $183 million for the period.

Comps were down 6 percent in November and off 15 percent for the first 22 days of December, the company said. Sales rebounded slightly in the final days of December to end the month with a 12 percent decline.

Said CEO Ed McEntire, ‘Even though total sales for the holiday period did not meet our expectations, we remain confident in the long-term prospects for our business model and product mix.’

To that end, Ultimate will open eight new stores in 2003, and will enter three new markets: Austin, Texas, Kansas City and Wichita, Kan.

The company will also change the names of all eight Minnesota stores from Audio King to Ultimate Electronics this year.

CFO Alan Kessock said he expects total sales for fiscal 2003 to finish between $700 million and $710 million, and to range between $820 million and $840 million in fiscal 2004, against comp growth of flat to 2 percent.

For Good Guys, total sales fell more than 7 percent to $121.6 million in December while comps slipped 3.8 percent overall and 2 percent absent the discontinued PDA category.

Chairman/CEO Ken Weller attributed the sales slump to the closure last year of seven underperforming stores and ‘less overall demand for higher-end electronics products this holiday season.’

Nevertheless, he said that average transaction size, gross profit per transaction and lines per transaction all increased over the year-ago period – putting Good Guys’ goal of returning to profitability in the current fiscal year ‘well within reach.’

The company had a net loss of $40 million for its previous fiscal year, which ended in February.

Top holiday sellers included flat panel displays, projection TVs, PVRs, HD set-top boxes, digital cameras, MP3 players and wireless phones.

‘Our focus on improving the in-store experience and quality of sales metrics coupled with our strong in-stock position enabled us to take better advantage of sales opportunities during the month,’ Weller said.

Sales were also soft for Rex Stores, whose fourth quarter revenue fell 8 percent to $108.3 million while comps slid 3 percent for the four months ended Jan. 1, 2003.

Elsewhere, gaming specialist Electronics Boutique said net sales rose 6 percent for the nine-week period ended Jan. 4, 2003 to $437.6 million while comps slipped 9.1 percent.

President/CEO Jeffrey Griffiths attributed the slump to a tough year-ago comparison due to the introductions of Xbox and GameCube in Novemer 2001, plus the soft economy and six fewer selling days between Thanksgiving and Christmas 2002.

November comps fell more than 20 percent and December comps were flat, helped by a year-over-year gain in post-Christmas sales.

Griffiths said he ‘firmly believes in the continued strength’ of the gaming industry as evidenced by the growing installed base of current generation console hardware.

Bucking the holiday downturn was Sharper Image, which reported record sales for December and the trailing 10 months.

Total December sales were up 31 percent to $122.4 million and same store sales climbed eight percent, while net for the 11 months ended Dec. 31, 2002 rose 32 percent to $472.3 million and comps grew 12 percent.

Founder/CEO Richard Thalheimer said the chain’s store, online and direct sale channels all enjoyed double digit gains in December, which he attributed to its proprietary products, attractive merchandise selection, effective advertising and accurate inventory planning.