CompUSA issues warning on sales decline

Although the chain attributes some of the decline in sales to a shift in strategy away from low-cost volume products, the slide also reflects a growing malaise in computer retailing.

3 min read
CompUSA today announced sales results for the holiday quarter, and with net sales down 21 percent, the news isn't pretty.

The computer retailer reported that net sales for its second fiscal quarter, which ended last week, came to approximately $1.38 billion, a 21 percent drop from $1.75 billion in sales for the same period a year ago.

The numbers released today reflect CompUSA's holiday sales figures. The full quarterly earnings report will be released on Feb. 2. The company's stock was down 8.7 percent today in early trading to 5.25.

Although the chain attributed some of the decline in sales to a shift in strategy away from low-cost volume products, the slide also reflects a growing malaise in computer retailing. Direct sales methods, the rise of online merchants and super-discount computers are eroding the financial picture for traditional computer and electronics outlets. Corporate resellers, which sell PCs to businesses, have also experienced declines and layoffs in recent quarters because of direct and online sales.

Online retailers aren't escaping the onslaught either. Earlier today, Value America, an Internet-based retailer, announced that it would lay off approximately half of its employees and report lower-than-expected numbers for the quarter. The company also announced that co-founders Craig Winn and Rex Scatena are leaving.

CompUSA's latest sales results come amid a reorganization and a decline in profits over the past six quarters. The sales figures for the quarter that ended Dec. 25 were up only slightly on a sequential basis from the company's first fiscal quarter. The Christmas quarter, however, historically delivers a jump in sequential sales. In any event, the previous quarter was down from the comparable period in 1998.

Still, there was some good news for shareholders in today's report. Gross profit margins are starting to increase as the company moves its focus away from retail PC sales and into electronics and notebook computers.

"We believe the overall impact of implementing our business initiatives will result in record gross margin levels exceeding 16 percent, surpassing our previous record of 15.2 percent which we attained last quarter," James Halpin, CEO of CompUSA, said in a statement.

Sales of notebook PCs in retail stores, for instance, increased 35 percent over the same period a year ago, and, unlike the desktop PC market, selling prices actually increased an average of 5 percent as a result of component shortages.

The company has also formed a subsidiary to do online sales and recently redesigned the site, renaming it Cozone.com. Halpin said Internet-only sales at the site increased 24 percent from $6 million in the first quarter of fiscal 2000 to $7.5 million in the second quarter of fiscal 2000.

The future could also hold marketing deals for the company with AOL, Microsoft's MSN or some other Internet service provider. ISPs are busy cutting deals with retailers to promote their services. Some of these deals, such as Microsoft's multimillion-dollar agreement with Radio Shack, have included major cash infusions.

Even without direct investments, the deals are proving lucrative as they can lead to increased marketing and PC sales. Analysts and industry executives have predicted that nearly every major electronics outlet will line up with one of the major ISPs.