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Harvey’s Q2 Sales Slip 2%

Lyndhurst, N.J. — Harvey Electronics, the New York metro area A/V specialty chain, said net sales declined 1.9 percent to $9.5 million for the three months, ended April 29, compared to the same period last year, while same-store sales fell 10 percent.

Franklin Karp, president/CEO of the nine-store chain, attributed the downturn to a scarcity of flat-panel displays and a delay in launching a new advertising campaign. “While there can be no denying that sales remain softer than we had hoped, our results are being impacted by the shortages in flat-panel video product,” he said. “When these products were available in February, and we were able to fill orders, we had a very strong month. However, in April, we experienced slow retail traffic, exacerbated by the continued shortages of flat-panel product.”

Karp said Harvey’s custom installation business remained strong in the second quarter, growing by about 5 percent overall, while labor sales increased 22 percent. As retail traffic slowed, custom installation grew to represent more than 67 percent of sales during the second quarter.

To build traffic, the company is modifying its advertising efforts based on feedback from recently conducted consumer focus groups. The new campaign, to be released during the third quarter, will “reflect current market conditions, customer needs and service demands,” Karp said.

The company is also responding to the sales decline by reducing overhead. Harvey is specifically targeting selling, general and administrative expenses, including payroll and certain store occupancy costs, and is working to improve purchasing and inventory efficiencies while implementing “appropriate merchandising changes,” Karp said. Harvey also modified its labor rates to improve revenues and margins of its profitable service business.

For the six months, ended April 29, net sales fell 4 percent to $20.9 million, and same-store sales slipped 10.5 percent year-over-year.

“While flat-panel product shortages and video price compression have continued through the first six months of fiscal 2006, demand for flat-panel televisions has increased and unit sales have surged 28 percent,” primarily in larger-sized plasma and LCD TVs, Karp noted. “This continues to provide a service opportunity for Harvey, as customers require custom installations of these televisions and related home theaters.”

Overall flat-panel sales increased in both dollars and units for the first six months of Harvey’s fiscal year, although the company’s total video business declined about 1.6 percent during the period, reflecting declines in “more traditional” video products, Karp said.

Sales for May continue to be slow, and key flat-panel shortages persist, although, “We do expect to see additional flat-panel product availability from our key vendors in the summer and fall of 2006,” he said.

Karp added that the company is “very optimistic” about a proposed $4 million capital infusion from several institutional investors and concomitant changes in its board, including chairman Michael Recca’s succession by Andy Stackpole, a principal of Trinity Investment Partners. The measures are expected to pass at the company’s upcoming shareholders meeting.