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Tweeter: Flat-Panel Prices Stable, For Now

Tweeter Home Entertainment Group anticipates stability in flat-panel pricing at least through the first half of the year, but fears that the marketplace could heat up again by the back half of 2007.

That’s when plasma manufacturers will begin delivering an expanded assortment of 1,080p displays, which could set off another market share clash with LCD suppliers, warned president/CEO Joe McGuire.

Last week Tweeter reported lower revenue, comp sales and income for its first fiscal quarter, which ended Dec. 31. Total revenue from continuing operations decreased 12 percent to $234 million, from $266 million last year. Revenue from continuing operations included sales from 153 stores this quarter compared with 157 stores a year ago. Comp-store sales decreased 10 percent during the quarter.

The bulk of the revenue decline came in the projection TV category, which decreased about $22 million on a year-over-year basis. Operating income for the quarter was $2.8 million compared with $15.5 million last year. Net income from continuing operations for the three month period was $2.3 million compared with $14.7 million for the same period last year.

Speaking to analysts in a conference call on Feb. 6 following the release of Tweeter’s earnings, McGuire said that the first half of 2007 should be “a lot calmer” than the holiday selling season, when industry margins were squeezed by steep promotional pricing. But he feared that the format price war could reignite after new 1,080p plasma models arrive in May and June from Panasonic, and from Pioneer in July.

“Right now LCD is beating plasma due to the 1,080p advantage,” he said. “That will change when both technologies have 1,080p, and that will somewhat pressure the pricing.”

McGuire said it is “anyone’s guess” how another share fight might play out, although he hopes that clear heads will prevail. “We desperately hope that sanity reigns and the lessons of the past holiday season are not lost on the industry,” he told analysts.

Meanwhile, Tweeter’s microdisplay business, like its flat-panel assortment, continues to move to larger screen sizes with 1,080p resolutions. “While it’s hard to give away a 720p projection TV, 60-inch and 70-inch 1,080p sets are still selling very nicely for us,” McGuire said, and now represent 75 percent of Tweeter’s rear projection mix. “Our customer has clearly moved away from 50-inch, 720p rear-projection products,” added Philo Pappas, senior VP/chief merchandising officer, which the company is “aggressively liquidating.”

To ride the trend up, Tweeter is exiting all entry-level price tiers and is moving its marketing message away from a mass audience toward higher income consumers, said senior VP/chief marketing officer Patrick Reynolds.

McGuire added that audio is “alive and well,” and now represents 15 percent of Tweeter’s sales mix. Areas of strength include HTiBs, in-wall speakers and receivers. The latter category is up in both dollar and unit volume as demand for HDMI switching capabilities and iPod play-through grows, he said. — Additional reporting by Steve Smith