Tech Industry

THE DAY AHEAD:Is CompUSA cooked?

CompUSA Inc. (Nasdaq: CPU) managed to beat Wall Street's extremely low expectations and left just enough comments behind to lure a few punch-drunk investors. But that's where the alleged good news ends. Is CompUSA cooked?

The computer retailer reported a fourth quarter loss of $14.9 million, or 16 cents a share, beating estimates by 8 cents a share.

Yippee. CompUSA also cut 1,800 workers in a move to allegedly "improve customer service." CompUSA is making dramatic moves to cut costs, focus on key markets such as services and education and become an e-commerce player.

But it all just seems to be a little too late. CompUSA may be too bulky and bureaucratic in the real world and too slow to go online. And CompUSA's comparable store sales for the fourth quarter were up a dreadful 1 percent.

Here are some of the turnaround plans from CompUSA and what you need to know to cut through the clutter.

CompUSA says it can become a strong e-tailer. The company will see losses from its Web site, but plans to make a big splash. In an attempt to keep investors interested the company said it will "explore strategic partnerships and/or access the capital markets over the next three to six months to fund the growth of CompUSA Net.com."

The reality: CompUSA is a little late to the game and will face the same pricing competition online that it sees in the real world. If CompUSA is so progressive why did it take so long to hatch a Web plan? We'll believe it when we see CompUSA be a Web star.

CompUSA says it is on the right track. Some foolish investors may think CPU is a buying opportunity because it is restructuring to cut costs. "Even though we are still in the beginning stages of implementing our new strategy, we have already experienced positive results, including a significant improvement in our retail product margins," said James F. Halpin, president and CEO. In CompUSA's case anything may be an improvement.

The reality: Cutting costs may not be enough. The company said it is dropping non-retail customers that don't meet profitability objectives. Why did CompUSA carry this deadweight in the first place? The company "believes this decline in sales will result in approximately low double-digit negative comparable store sales for the first quarter of fiscal 2000."

CompUSA says it will become more efficient as it upgrades its information technology systems. CompUSA is outsourcing its IT development and support to IBM Global Services and implementing SAP's Enterprise Resource Management program.

The reality: It will won't be until this time next year before CompUSA has its IT act together. Put simply, it will be a year before CompUSA will be efficient. CompUSA expects a hit of 3 cents a share to 4 cents a share every quarter for fiscal 2000.

And that's just some of the more obvious problems with this troubled retailer. The company will continue to take a host of charges to liquidate and write-down excess inventory. CompUSA keeps saying it's a victim of falling PC prices, but its recent restructuring indicates it's a bloated, inefficient company that will have a tough time turning itself around.

These big turnarounds have been accomplished before. See Best Buy (NYSE: BBY) for an example. But CompUSA seems to be a bit too far gone.