Ultimate Electronics' stock was up 50% in early trading on the announcement that eight new builders will be using the company's services, which include high-end home theater, home networking/structured wiring, and security systems. Last year, the company worked on 6,000 homes, and it expects to do well more than twice that volume this fiscal year. Ultimate Electronics supplies more than 25 homebuilders, including the five largest ones.
Getting builder business is part of the company's strategy to reverse a sharp drop in its business. With 65 retail stores in 14 states, Ultimate Electronics would seem to be ideally positioned. In the first six months of this fiscal year, TV and DBS (direct broadcast satellite) systems (such as DirecTV
The company focuses on mid- to upscale products, matches competitor prices, and uses demonstration rooms for home theater and audio products. A good example of how far the company is willing to go to get a sale can be seen in its Ultimate iPod Experience for Apple's
As good as this story sounds, the financials are downright ugly. Debt exceeds cash by more than $50 million, and the company had negative free cash flow of $54 million over the last 12 months. The only good news is that the company's market capitalization is still less than $50 million (under 7% of sales) -- even after today's rise.
This week, Ultimate Electronics will report third-quarter results. Because turnaround initiatives have, so far, been unable to reverse same-store sales declines, the earnings news will probably be anything but upbeat. (The company has already announced that sales declined 1.7% in the latest quarter.)
When you are a lilliputian competing in a world with cash-rich giants such as Best Buy
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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.