Good Guys bullish on future growth

Good Guys bullish on future growth – Brief Article

Doug Desjardins

BRISBANE, CALIF. — While most retailers suffered through a lackluster holiday shopping season, The Good Guys enjoyed one of its strongest quarters in recent memory. The 79-store consumer electronics chain based in Brisbane, Calif., posted an 8.5% increase in same store sales for the three-month period ended Dec. 31, 2000, generating $282 million in revenue, compared to $260 million during the same period in 1999.

Good Guys attributes its strong performance to brisk sales of digital entertainment products such as high-definition televisions, digital cameras and wireless mobile electronics. “This was our third straight quarter of sales growth,” said Good Guys spokeswoman Kristin Lark. “We’re pleased with the trends we’re seeing, and we think we’re on the right track.”

The results also stirred the interest of investors. In the week following the Jan. 5, announcement of its same store sales increase, Good Guys’ price per share rose more than 20% from $3 to $3.65.

Lark said the success Good Guys enjoyed during the holiday season was largely due to the product changes the chain made more than one year ago.

In September 1999, Good Guys began to phase out its entire line of computers and home office products, a merchandise sector that generated 14% of the chain’s total revenue the previous fiscal year. In its place, the chain increased its commitment to higher end digital entertainment products and wireless technology. It followed this shift with an intensive retraining of its sales associates in early 2000 and the restructuring of its stores to put more emphasis on digital and wireless products.

“It makes a big difference because now our wireless technology is being sold by specialized sales teams,” said Lark. “And we think the results of all this training and the restructuring of stores really showed in the fourth quarter.”

The changes also showed in Good Guy’s financial report for its fiscal year ended Sept. 30, 2000, which produced an overall loss but included signs of improvement.

Good Guys incurred a net loss of $17.3 million for fiscal 2000, or 84 cents per share, as compared to a net loss of $39.9 million, or $2.58 per share, in fiscal 1999. Sales decreased 6% to $860.5 million in fiscal 2000, as compared to $915.6 million the previous year–a drop the chain attributed to phasing out its computer and home office products during the fourth quarter of 1999.

Sales of continued products increased 5% to $860 million for fiscal 2000, as compared to $820.4 million the previous year. Earnings before interest, taxes, depreciation and amortization (EBITDA) were positive, increasing to $13.4 million, compared to a loss of $21 million for fiscal 1999.

The chain also showed a bump in its margins. Gross profit margins increased to 28.6% of sales in fiscal 2000, as compared to 24.3% in fiscal 1999, and gross profit dollars increased to $246 million, as compared to $223 million in fiscal 1999.

The increase is a direct result of no longer having computers and home office equipment in the product mix, which generated lower margins than the company’s average. “So all the evidence we’ve seen has shown that it was the right thing to do,” said Lark.

The chain’s two-year moratorium on new store openings is still in effect. The moratorium began in the summer of 1999 and will be re-evaluated when it expires later this year. “The focus right now is on getting the stores that are up and running profitable before we look toward expansion,” Lark said.

Good Guys is also in the process of revising the way it reports its financial results, and is currently in a five-month transition period that will end on Feb. 28. On March 1, the company will begin its new fiscal year for 2002. The change is being made to align its fiscal year more closely with those of other consumer electronics chains and give the investment and retail communities a better point of comparison between Good Guys and its competitors.

COPYRIGHT 2001 Lebhar-Friedman, Inc.

COPYRIGHT 2001 Gale Group