"The scene was rockin', all were digging the sounds
Igor on chains, backed by his baying hounds
The coffin-bangers were about to arrive
With their vocal group, The Crypt-Kicker Five"
-- Bobby "Boris" Pickett, "The Monster Mash," 1962

What gives with the Halloween music? Well, it's the prelude to a really scary story about prerecorded-music purveyor Handleman (NYSE:HDL), which in fiscal year 2004 sold 11% of all retail music in the U.S., more than 25% in Canada, and over 9% in the UK, in a market whose size has declined on increased sales of MP3s and music piracy. Though that's a decent market share, it's not monstrous.

Ah, but Handleman does have a real monster in its closet. So let's take a look at this Jekyll-and-Hyde story.

Dr. Jekyll
The company's fourth-quarter results could have made the upcoming Mr. Hyde section -- but let's be nice for a moment. In the fourth quarter, revenue fell 7.8% and net income dropped 17%. But for the fiscal year (ending in April), revenue rose 3.3% to $1.26 billion over fiscal 2004, while net income drifted 4.5% lower to $34.9 million. (It's worth noting that net income actually increased 2.6% net of gains/losses from discontinued operations.) So for the year, the results were not too ugly.

Also respectable is the balance sheet, with $30.8 million in cash and no debt. The company also has authorization to repurchase up to 15% of its shares. But even more respectable is the market Handleman operates in -- helping to sell music at mass retailers. Mass marketers saw their share of the market increase from 36% in 2003 to 41% in 2004.

Mr. Hyde
Now, read through the company's fiscal 2004 annual report, and you'll find this little horror: Wal-Mart (NYSE:WMT) accounted for 68% of sales, and Kmart -- a Sears Holdings (NASDAQ:SHLD) company -- made up 17% of sales. Talk about concentration.

Cue the monster music! Cue the howling!

In March, it was announced that Kmart was scaling down its agreement with Handleman. While Handleman was going to supply 1,070 Kmart stores, another supplier was going to get approximately 400 others. That would reduce Handleman's overall sales by 4%, provided that proportional figures remain constant with last year's numbers -- but the company forecast that it would "offset the lower sales and operating income with cost reductions and sales growth with other customers."

Well, when third-quarter results were announced in May, the company was looking for fiscal-year income of $1.63 to $1.65 per share. In June, the company reduced that range to $1.54-$1.56 a share. The actual figure ended up at $1.51.

The company says that net income for fiscal 2006 will be "slightly ahead" of that in FY 2005. Given its inability to forecast the fourth quarter, investors have a reason to be frightened.

At 10 times 2006 estimated earnings (according to the one analyst who follows the company), the stock is selling way below the market averages -- and the stock pays a reasonable 2.4% dividend. But with monstrous customer concentration, this is a high-risk stock without an obvious growth engine.

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Fool contributor W.D. Crotty does not own shares in any of the companies mentioned -- although he does have an original vinyl Monster Mash album. (And get this: Elvis labeled the hit title song the "dumbest thing I ever heard.") Click hereto see the Motley Fool's disclosure policy.