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CompUSA posts 26% earnings jump

CompUSA's earnings--and business channels--grow even as competitors' shrink; analysts say the phenomena are related.

CompUSA (CPU), bucking the trend by expanding as others bow out of the computer retail market, today reported a 26.7 percent jump in second-quarter profits.

Amid reports of slumped holiday sales from competitors, CompUSA reported net profits of $23.7 million, or 25 cents a share, for the quarter ending December 28, compared with earnings of $18.7 million, or 20 cents a share, a year earlier. The earnings met analysts' expectations, according to First Call.

CompUSA closed at 18-3/8 a share, up 7/8 from yesterday's close.

CompUSA also recorded net sales of $1.2 billion for the quarter, up 22 percent for the same quarter a year earlier.

"Overall we are pleased with our financial results for the second quarter," said James Halpin, chief executive and president. "CompUSA achieved record earnings despite the holidays and a slowdown in retail sales toward the end of the season."

Analysts say that some of the company's success may be related to competitors' failures.

"The fact that Tandy got out of some business opens the market for [CompUSA], but this is a very competitive market," said analyst Lewis Alton of L.H. Alton & Co.

Tandy announced in December that it is selling its chain of Incredible Universe computer stores and closing almost a fifth of its Computer City outlets in North America.

"There are just so many stores trying to gain the same customers. But, CompUSA obviously have a good formula because they are meeting their profit objectives," added Alton.

As competitors walk away from the market with store closings, mergers, and cutbacks, this will leave as much as $2 billion of the PC market up for grabs, said Halpin.

The computer retailer chain earlier this month reported comparable sales at stores opened at least a year were up 1.5 percent. But investors had expected the comparable store sales--the benchmark of a retail chain's financial health--to be closer to 3 percent, which caused the stock to slide 22 percent.

Analysts were not optimistic that comparable store sales could retain even that growth over the next quarter.

"They will continue to grow if they can fill up the spaces that are left by competitors. But, I doubt that you will see any comp store growth for the rest of fiscal 1997. It just depends on their competition," said Alton. But, the company is optimistic.

"January is off to a good start. Office 97 is selling very well and MMX is selling better than our expectations," said Halpin. He also added that tax software and Star Wars games should be big sellers.

CompUSA, however, relies on more than just its computer retail stores to pull in revenues.

The company has a variety of channels including direct sales, educational sales, government sales, training, tech service and mail order contributing to its growth.

"We continue to diversify and are not solely dependent on our retail channel," said company spokeswoman Carol Elfstrom. "Retail represents about two-thirds, but they are all growing business for us."

Some of those channels are in their infancy, such as direct sales from the company's Web site. The company shifted to a new Web site in December, which now allows secure online transactions. But, those currently small channels offer big potential.

Tech services, which includes upgrades, repairs and on-site installations, is one of the highlights of the business, said Elfstrom.

"It is a bright spot growing at a strong rate," she said, "But it represents a small portion (of the business)."