Following its July report of a 3-percent drop in fiscal third quarter sales (TWICE, July 21, p. 1), Tweeter Home Entertainment group announced its earnings moved into the red for the three months, ended June 30, posting a net loss of $4.1 million, compared with a barely-breakeven net income of $103,000 during the year-ago third quarter.
Tweeter's loss from operations reached $6.4 million in the third quarter, compared with income from operations of $678,000 in the same three months in 2002.
President/CEO Jeff Stone said that the biggest problem the chain is facing continues to be store traffic. Also in its fiscal third quarter, Tweeter said operating income, as a percentage of revenue, decreased to a negative 3.8 percent, down from 0.4 percent in the same period last year. This was due to an increase in selling expenses, excluding an adjustment for reclassifying $5.7 million of co-op advertising funds from selling expenses to cost of sales, as well as a 240-basis-point decline in gross margin.
Overall gross margin in the third quarter dropped 2.4 percent to 33.8 percent in the same three months in 2002. The majority of this was due to a reduction in vendor rebates, with the balance due primarily to product margin and mix changes.
For its fourth fiscal quarter, ended in September, Tweeter expects comp-store sales in the range of negative 3 percent to negative 6 percent, with revenue in the range of $184 million to $189 million.
Nine month sales dropped to $602.1 million, down from $613.1 million, while the company reported a net loss of $1.4 million for the period, compared with net income of $16.2 million in the same nine months last year. The retailer took a $643,000 loss from operations in the nine months, compared with income from operations of $28.6 million in the same period in 2002.
In a conference call, Stone said the company is working to identify and correct operational issues and to develop a new strategic direction under its Foundations for Winning initiative (see TWICE, June 9, p. 6). Targeted improvements include higher attachment rates for accessories and warranties; maximizing buying power; better store execution and category management; centralizing freight costs; more efficient use of ad dollars; and improved supply chain efficiencies to reduce inventory and out-of-stocks.
On the strategic side, the company is considering various plans to re-invent itself in advance of dramatic changes in CE technology and market share gains by national discount chains, which would emphasize service and solutions in addition to product. "Tweeter's days of being a product-centric CE retailer only are on the way out," Stone said. "The digital world and the realities for a connected future have changed CE retailing, as have changes in industry players, and we are morphing, as all successful companies do in their lifecycle."