Traffic declines, driven by residual impacts from last year, as well as shifting competitive pressures, drove fiscal third-quarter sales at Ultimate Electronics down 1.3 percent to $157.2 million, compared with $159.7 million in the year-ago period. Comp-store sales dropped 8 percent in the three months.
At the same time, Ultimate cut its loss from operations by nearly half, reporting negative third-quarter results of $5.5 million, compared with a $9.9 million operating loss in the third quarter of 2003. Gross profit margin also improved in the third quarter, up over 1.5 percentage points, to 34.8 percent. Expenses as a percentage of sales improved in the three months, reaching 38.3 percent, compared with a year-on-year 39.4 percent. Net loss for the third quarter widened slightly to $6.5 million from a year-ago loss of $6.2 million.
“The $4.4 million improvement in our third-quarter loss from operations indicates that our turnaround initiatives are taking effect,” said Dave Workman, president/CEO. “Our gross profit margin, comparative-store sales metrics, and selling, general and administrative [SG&A] expenses have improved each quarter since implementing our turnaround strategy.
In a conference call, chief financial officer David Carter said the company continues to maintain a “very good relationship” with its vendors. “They remain cautious but still supportive,” he said.
Workman provided no holiday sales guidance, except to say that Ultimate remained “very competitive” on Black Friday, and that the chain has “all the pieces in place for a successful holiday season.”
In specific consumer electronics sales movement, half of Ultimate’s overall volume now is accounted for by the television/DBS category, which hit a 50 percent level in the third quarter, up from 49 percent in the same three months last year. Audio also climbed in the third quarter, ended Oct. 31, with this category accounting for 18 percent of sales, up from 16 percent in the same three months a year ago.
Categories that saw sales percentages decrease in the third quarter, compared with the previous year, were video/DVD, down to 10 percent, from 12 percent; mobile, at 6 percent, down from 8 percent; and home office, at 1 percent, down from 2 percent. The remaining product categories, lumped together as “other,” rose to a 15 percent share, compared with a year-ago 13 percent.
Tempering the third-quarter sales decline was a factor that favorably impacted movement, namely the improvement in Ultimate’s conversion rate of store traffic to sales, which the retailer believes resulted from its more focused marketing strategy. Gross profit margin improved due to continued focus on merchandise selection, inventory management and store-level execution. Expenses were improved primarily as a result of reduced advertising and selling expenses.
“The results reflect our focused initiatives on increasing gross margin, managing inventory, improving advertising effectiveness, reducing SG&A and enhancing the customer experience with Ultimate Electronics,” continued Workman.
“We remain committed to our turnaround strategy and expect to see continued improvement in our business. Our actions position us well for the holiday season and as we enter 2005.”
For the nine months, sales dipped 1.5 percent, down to $462.5 million from a year-earlier $469.6 percent. Comps decreased 9 percent.
Loss from operations for the nine months widened to $27.2 million from $15.1 million loss in the same period in 2003. The net loss soared to $31.1 million from a year-ago loss of $9.5 million.
For the nine months, gross profit margin was 33 percent, down from 33.2 percent the previous year. Expenses climbed to 38.9 percent in the period, from last year’s 36.4 percent. — Additional reporting by Alan Wolf