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Tweeter Sales Slide In Fis. Q4, Net Loss Widens

Canton, Mass. — Tweeter Home Entertainment Group was hit hard in the Southeast by hurricanes and related weather issues resulting in revenue of $175.9 million in its fiscal fourth quarter, down from $181.6 million in the year-ago period.

Tweeter slightly improved its loss from continuing operations in the fourth quarter, ended Sept. 30, down to a negative $15.1 million from a loss of $15.8 million in the same period last year. The retailer’s net loss for the three months reached $12.6 million, compared with a net loss of $10.3 million in the same three months last year. Comp-store sales decreased 3.5 percent, with much of this decrease occurring due to poor southeastern U.S. weather.

For the 12 months, revenue climbed 1 percent to $778.2 million from $771.6 million in 2003, while the company’s net loss widened to $18.2 million from a loss of $11.7 million. Loss from continuing operations for the year climbed to $22.3 million, up from a year-ago loss of $16.2 million. Comp-store sales decreased 1 percent.

“Our year-end results reflect the decisions that we made this year to strengthen the foundation of our company,” said Jeffrey Stone, president/CEO. “We believe that we have added the necessary infrastructure, enhanced systems such as supply chain and removed expenses to allow us to compete as a multibillion dollar, several-hundred-store retailer.” In a conference call, he described the improvements as “tremendous.”

Tweeter reported a “large increase in gross margin” in its fiscal fourth quarter, due, in part, to an easy comparison with the same period last year. Cost of sales in the three months dropped to $106.9 million, from a year-ago $127.6 million. Improved product gross margin and an increase in vendor program funds accounted for a large percentage of the increase.

Last year, the retailer engaged in an aggressive campaign to reduce open-box and discontinued inventory. At the time, the company decided to give up gross profit dollars to achieve its goal of lowering discontinued inventory to 10 percent of total inventory by September 2003.

Tweeter reported an increase in selling expenses for the current fourth quarter, rising to $67.5, compared with $55.5 million in the same three months a year earlier. This was due mainly to an increase in compensation and gross advertising expenditures.

As an added sweetener, Stone said Tweeter intends to return to a positive comp-store sales performance in its next fiscal year, as well as to produce profit for shareholders. He cited renewed confidence in Tweeter’s potential going into its most important quarter of the year, ended in December.

Indeed, Stone and chief financial officer Joe McGuire said in the conference call that they anticipate positive comps for every quarter of its current fiscal year. Drivers include an effort to attach in-home sales of cables, DVD players, remote controls, extended warranties and other products and services to installation visits; a new uniform compensation structure for sales staff, the first in at least 14 years, that will incentivize a “more complete basket”; and “experiments” with vendors in the areas of consignment sales and longer terms.

Stone added that some 98 percent of Tweeter’s TV sales in 2004 were comprised of microdisplay models. “We essentially exited the analog TV business this year,” he said. — Additional reporting by Alan Wolf