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CompUSA expects loss, shares dive

Shares of CompUSA plunge more than 15 percent after the national computer retailer says it anticipates lower-than-projected sales will lead to losses.

    Shares of CompUSA plunged more than 23 percent this morning after the national computer retailer announced that it anticipates lower-than-projected sales will lead to losses in both the third and fourth quarters.

    Analysts cited falling unit prices, as well as strong pressure from PC sales on the Web, for CompUSA's current predicament.

    The profit warning, released after the market closed yesterday, was based on the company's lower-than-expected sales for the first nine weeks of its fiscal third quarter which will end March 27. Lower unit prices and weaker margins will lead to a unspecified high single digit percentage decrease in sales, the company said.

    CompUSA said it currently expects its earnings per share for the third quarter to be flat, excluding the impact of its information technology and Internet business initiatives. But including these costs, amounting to 5 cents per share, CompUSA will post an unspecified loss for the third quarter. A consensus of Wall Street analysts expected the retailer to rack up a 21-cents-per-share profit, according to First Call.

    CompUSA is trying to gain a foothold in the rapidly expanding online direct-marketing sales segment, but analysts agreed that until now its brand power in the brick-and-mortar world has not translated to recognition on the Web.

    "You do have your traditional post-holiday slump, but this is exacerbated by more and more people who used to buy through retail channels, turning to buy directly over the Web," said Joe Rigoli, a distribution channels analyst at International Data Corporation.

    Rigoli noted that IDC research shows that one-third of small to midsized businesses with less than 1,000 employees, and even those with less than 100 workers, have bought PCs on the Web.

    "That is a pretty significant number, and it's growing," said Rigoli.

    CompUSA also currently anticipates the gross margin for the quarter to be about 13 percent to 13.2 percent.

    Analysts noted that the spurt in PC penetration into the home was primarily driven by sub-$1,000 units, resulting in strong pressure on margins.

    "We believe there is some evidence of sub-$1,000 units selling to small businesses as well," said Deepinder Sahni, a senior analyst at Access Media International. "I think certain segments of small businesses don't need the huge power of more expensive computers."

    Shares of CompUSA tumbled 23.03 percent in morning trading to 6.25. The stock closed down 15.03 percent or 1.44, to 8.13 yesterday and has traded as high as 33.44 and as low as 8.06 during the past 52 weeks.

    Systems based on Intel's newly released Pentium III chips or AMD's K6-3 chips are unlikely to give a boost to PC vendors.

    "I think software is running behind hardware in terms of processing power required," said Sahni. "I don't think people have been putting off their purchases while waiting for the new chips so they could run [low-power applications] a little faster."

    The company is one of the nation's largest retailers and resellers of personal computers and related products and services, operates about 208 stores across the United States, and has an e-commerce site.