Denver - Ultimate Electronics was encouraged by the increase in gross margin and the sale of digital products, mainly digital televisions, during its fiscal second quarter and reported a 15 percent jump in sales during the three months ended July 31, reaching $117.6 million, compared with $102 million in the year-ago period.
Net income in the second quarter, however, dropped about 20 percent to $1.8 million, compared with $2.3 million in the same three months last year.
Comparable store sales were down 5 percent in the quarter, however, gross margin - impacted by the strong sales of digital TV at higher margins than analog TV, as well as slightly higher margins in most of the chain's other categories - increased 30 basis points to 32.7 percent. However, selling, general and administrative (SG&A) expenses in the quarter rose 130 basis points to 30.2 percent, due to lower comp-store sales as well as infrastructure additions necessary for the store expansion planned for this year and next.
'We expect this margin improvement to continue in the third and fourth quarters, partially offsetting the current sales environment,' said Dave Workman president and chief operating officer.
'Continued comp-store growth is expected for the balance of the year in digital TV, DVD, digital still cameras and DBS products,' said Workman.
Category by category during the second quarter, Ultimate Electronics did 35 percent of its business in television/DBL, compared with 30 percent in the same quarter in 2000. Audio accounted for 20 percent, down from 22 percent in the year-ago second quarter. Video/DVD lost one percentage point to 16 percent, year over year. Mobile was down to a 12 percent share, compared to 13 percent in the same quarter last year. Home office lost one point to 4 percent in the current quarter, compared with the year-ago three months, while share in the other category remained the same at 13 percent in the comparative quarters.
'Looking to the remainder of this year as well as next year, we continue to be excited about the acceptance of the new product offerings and the anticipated 16 additional stores that will extend our presence into the St. Louis and Dallas/Ft. Worth markets,' said Ed McEntire, CEO.
McEntire noted that while the company was pleased with the 15 percent sales rise in the second three months, comp-store sales during this period were less than expected. He said the retailer was pleased with the performance of the Phoenix and Oklahoma City stores, located in the chain's two newest markets, which exceeded expectations for the quarter.
In conjunction with the growth in the digital categories, Ultimate Electronics said its home installation business was up 33 percent for the year.
For the six months, sales climbed 16 percent, reaching $232.7 million, up from $197 million in the prior first half. However, net income dropped about 8 percent to $3.5 million, compared with $3.8 million in the year-ago six months. Comp-store sales were off 3 percent for the six months.
Gross margin for the first half edged downward 10 basis points to 31.8 percent, while SG&A rose 70 basis points to 29.3 percent, due to infrastructure additions necessary for store expansion.