By Alan Wolf & Bob Gerson
Tweeter Home Entertainment Group has taken another step toward becoming a national specialty CE chain by setting its sights on United Audio Centers as its next acquisition target.
The merchants, both members of the PRO Group buying organization, announced last week that they had reached an agreement in principal for Tweeter to snap up the Chicago-area specialist for $6.5 million in Tweeter stock. United, a 40-year-old chain run by president Shelley Miller, operates seven stores that together generated about $48 million in revenue last year.
Under terms of the deal, which is expected to close April 1, Tweeter will exchange its stock for 100 percent of United's shares, and Miller will relocate to the chain's Boston area headquarters to join management as a senior vice president.
If approved by federal regulators, the acquisition would be Tweeter's fifth in the past four years and would give the Canton, Mass.-based chain its first foothold in the Midwest. As Tweeter president Jeff Stone acknowledged, "The United Audio acquisition is another important step in Tweeter's growth. Tweeter expects to grow United Audio's presence in the greater Chicago area over the next several years and use the Chicago marketplace as a springboard into other surrounding cities."
The purchase continues an aggressive growth-through-acquisition strategy that began with the buyout of mid-Atlantic chain Bryn Mawr Stereo & Video in 1996. Tweeter went on to purchase Southeastern chain HiFi Buys in 1997 and last year picked up Texas-based Home Entertainment and Southern California's Dow Stereo/Video. Like its previous picks, United fulfills Tweeter's acquisition criteria as a family-run, high-end regional chain with local market dominance.
Separately, Tweeter posted record sales and earnings for its fiscal first quarter. For the three months to December 31 the 76-store chain had a 78.2 percent jump in net to $8.1 million as revenue increased 43.8 percent to $124.8 million. Comparable-store sales were up 11.9 percent.
Tweeter credited its 11 percent increase in income from operations to "an increase in gross margin, as well as a reduction in general and administrative expenses as a percent of total revenue." Its gross margin rose 2.5 points from the same year-earlier period to 36.6 percent of sales, the company said, reflecting "increased sales of higher margin products such as DVD players, high-end digital receivers, digital camcorders and digital TVs."
Stone added that the addition of the United Audio chain will bring to 21 the number of new stores Tweeter will add during fiscal 2000.