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Tweeter Sales Increase In Q1

Fiscal first-quarter sales, although higher year-on-year, came in under internal forecast, said specialty retailer Tweeter Home Entertainment Group, which also reported it did not achieve internal plans for profitability.

Even though not reaching the goal set by Tweeter, sales for the period ending Dec. 31 did increase 5 percent, hitting $262 million, up from a year-ago $250.8 million. Comp-store sales for the three months rose 2 percent.

The retailer reported net income of $4.9 million in its fiscal first quarter, compared with $5.1 million in the same three months in 2003. Margin, however, did turn upward, with Tweeter recording a bit over a 2 percentage-point gross margin increase in the same time frame. This was attributed to improved vendor programs, an increase in attachment selling of select high margin categories and increases in certain product category gross margins.

“We did not achieve our internal plans for profitability for the quarter and fell about $2 million short of our EBT [income before taxes] goal,” said Jeff Stone, president/CEO. “As sales came in under our internal forecast, the profit result was not surprising. We feel optimistic about the trends that we are seeing in our margin performance, our labor initiatives and our attachment selling.”

Tweeter said in a conference call that flat-panel was now 23 percent of sales vs. 18 percent for the year-ago quarter. Audio was down to 18.5 percent of product mix, from 19 percent in the year-ago quarter, although the retailer said it did a good business in high-end radios and MP3 players. It said it is looking to increase its number of installers by 33 percent this year.

Net income from continuing operations for Tweeter in the first quarter was about a wash, coming in at $5.27 million, compared with a year-ago $5.29 million. As a percentage of revenue, operating income from continuing operations was 3.4 percent in this year’s first quarter, compared with 3.6 percent in the same three months in 2003.

Selling expenses climbed 3 percentage points in the first quarter. This increase as a percent of sales was primarily due to a $5 million increase in advertising expenses, based upon implementation of a new ad strategy, as well as expense increases attributed to home installation services.

“In launching our new marketing/branding strategy, we believed that it was important to overspend our traditional advertising levels in Q1, so that the campaign would get immediate traction,” said Stone. Tweeter’s plan is to return to more historical levels of gross ad spending for the balance of the year, he said. However, costs associated with home installation will continue into the foreseeable future.

Joe McGuire, chief financial officer, said, “We have spent the last 18 months focusing on gross margin improvement strategies, and the result is a better gross-margin-rate performance for the quarter vs. the prior year, and higher than our internal plan.

“Gross margin is also being positively affected by our sales team selling a fuller basket of solutions to our customers,” said McGuire. “We expect to continue to have improved gross margin performance vs. the prior year for the balance of the fiscal year.” — Additional reporting by Alan Wolf