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Tweeter Sales Climb 31% In Fiscal Q1

CANTON, MASS. -Driven by the digital product cycle-with digital/digital-ready tube televisions a most recent plus factor-Tweeter Home Entertainment Group boosted a total revenue increase of 31.2 percent in its fiscal first quarter, reaching $162 million, compared with $123.4 million in the year-ago period.

Tweeter’s comp-store sales inched up 1.3 percent, excluding the United Audio Centers and Douglas TV chains.

Net income for the fiscal first quarter ended Dec. 31 climbed 20.6 percent to $9.8 million, up from $8.1 million in the same three months last year. Income from operations increased 13.4 percent to $15.5 million, compared with $13.7 million in the same 1999 quarter.

At the same time, Tweeter has revised internal expectations for its fiscal second quarter ending March 31. Due to an uncertain economic environment, the retailer now is planning for flat comp-store sales growth and is anticipating revenue in the $110 million to $112 million range.

Tweeter said digital/digital-ready tube televisions, introduced last June, accounted for almost 40 percent of tube TV sales in the December quarter and were the primary driver in increasing average selling price of this product category by 19 percent quarter over quarter, from $686 to $815. Digital product sales in all categories accounted for more than 43 percent of Tweeter’s revenue in the first quarter.

“Tweeter continues to execute its business strategy very well, even in the face of an uncertain consumer,” said president/CEO Jeff Stone. “We are particularly proud that we have been able to maintain stable product gross margins in an ultra-competitive environment.”

As a percentage of revenue, operating income in the quarter declined 150 basis points to 9.6 percent, mainly due to an decrease in overall gross margin and an increase in selling expenses, offset by a decrease in corporate and administrative expenses, all as a percentage of revenue, said Tweeter.

Overall gross margin declined 90 basis points to 36.1 percent, compared with the same quarter last year. The company said this was due to the inclusion of Douglas TV in its numbers, an increase in video as part of its total product mix, and higher than planned for distribution costs, which are included in the cost of goods.

The inclusion of Douglas TV as of Oct. 2, 2000, contributed a net decline in gross margin of 24 basis points. Video products grew to 48.6 percent of Tweeter’s total mix in the quarter, compared with 46.3 percent in the same quarter last year. The Douglas TV video mix was 67.9 percent.

Tweeter said higher-than-expected distribution costs accounted for 35 basis points of the gross margin decline, primarily due to running three separate facilities in the Chicago marketplace in the first quarter. Tweeter expects to be down to one facility for the region by March 1.

Selling expenses, as a percentage of revenue, grew 60 basis points in the quarter, compared with the year-ago three months, hitting 22.5 percent. This is primarily driven by increases in compensation costs associated with building infrastructure in its home-installation division, said Tweeter.

General and administrative expenses as a percent of revenue dropped 10 basis points to 3.7 percent during the quarter.