Top-line sales dropped 12%. Net income on a dollar basis declined a steep 85%. Earnings per share plummeted 83%. To add insult to injury, the quantity of diluted shares increased almost 3%.
Tweeter had an especially challenging time with projection television sales; the number of sets sold fell by 33%, while the average selling price dipped by 17%. Price deflation also set the retailer back in terms of on-wall sets -- the average selling price in this area plunged 24%.
Margins really suffered as a result of the pricing pressures. Gross margin lost 160 basis points compared to last year's quarter, and the operating margin dropped a whopping 460 basis points. The net margin stood at a measly 1% for the past three months, a very troubling sign for anyone who might hold the stock.
Competitive forces have not been kind to Tweeter. The consumer has a lot of choices when it comes to buying electronics. Best Buy
What should Tweeter do? Is this a turnaround story? Well, for starters, Tweeter needs to come up with a more effective marketing plan to bring in customers, most of whom now seem to think first of Best Buy or Circuit City when shopping for electronics. For now, I think Tweeter has a long way to go before it can be considered even remotely close to a viable investment.
The balance sheet has also weakened. The interest coverage ratio, defined as EBITDA divided by interest, has fallen to a dangerously low level of 1.3 -- and that's using extremely generous figures. If you subtract out capital expenditures, it gets worse.
What a terrible quarter. Is there anything else I can add? Sure: Tweeter trades for less than two bucks per stub, but it still isn't a value. I suppose Tweeter could be turned around at some point, but for now, I'd stay away. There are better retail ideas out there for Fools and their investing capital.
Get some additional Foolish perspective on Tweeter and the retail industry:
- Tweeter Could Be Sweeter: Fool by Numbers
- Neener Neener, Tweeter
- Retail Preview: The Year of Turnarounds?
- Best Buy Bests Circuit City, Again
Fool contributor Steven Mallas owns shares of none of the companies mentioned here. As of this writing, he was ranked 13,386 out of 22,443 investors in the CAPS system. Don't know what CAPS is? Check it out. The Fool's disclosure policy is like a bluebird on your shoulder.