CompUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %>

14951 North Dallas Parkway

Dallas, TX 75240

(214) 982-4000

(800) COMPUSA

CompUSA's Home Page

http://www.compusa.com

UNION CITY, Ca., August 20, 1996/FOOLWIRE/ --- CompUSA released earnings for Q4 and fiscal year 1996 last Wednesday, August 14th.

P&L SPECIFICS FOR Q4 AND FY 1996

CompUSA's fiscal year calendar ends on the last Saturday in June. This means that most years they have 364 days or 52 weeks. Every 5-6 years, however, they have a 53-week year. Fiscal 1996 was a 53-week year. Q4 of FY 1996 includes 14 weeks compared to the 13 weeks of FY 1995. In addition, in May the company acquired PCs Compleat. The acquisition of PCs Compleat is being accounted for as a pooling of interests and, accordingly, all the company's consolidated financial statements have been restated to reflect the operations of PCs Compleat for the periods presented. Another thing to keep in mind is that their Q2 and Q3 periods have seasonally higher sales per store than Q1 and Q4.

Net income for Q4 was $11.8 million or $0.25 per share which represents 151% increase over the earnings of $4.7 million or $0.11 per share in Q4 1995. This is despite a higher effective tax rate in FY 1996. The effective tax rate for Q4 was 45% compared to 22% for Q4 last year.

Included in Q4 were transaction costs for the acquisition of PCs Compleat of approximately $3.4 million. Most of these costs are not deductible for Federal Income Tax purposes and, thus, the higher tax rate. Excluding these costs, CompUSA's earnings per share would have been $0.32 in Q4.

For FY 1996 they reported net income of $59.7 million or $1.31 per share compared to net income of $24.3 million or $60 per share for the same period last year. The effective tax rate was 40% compared to 22% for FY 1995. Again, excluding the costs associated with the PCs Compleat transaction, earnings per share would have been $1.38 for the year.

The effective tax rate was lower in FY 1995 due to the utilization of their 1994 tax loss carryforward. The tax rate in Q4 1996 was impacted by the non-deductibility of certain transaction costs associated with the acquisition of PCs Compleat. All of CompUSA's loss carryforwards were fully utilized during FY 1995. The tax rate for FY 1997 should be from 39-40%.

Sales for Q4 1996 were $999 million, an increase of 38% from the $724 million of sales reported in Q4 last year. The increase is due to additional sales volume attributable to the 20 new stores added since Q4 1995, a 9.8% increase in comparable store sales for Q4, and the maturation of the company's existing stores.

They continue to be pleased with their sales productivity as average sales per store for Q4 was $9.5 million. As they mentioned, FY 1996 was a 53-week year. On a normalized basis the Q4 1996 average sales per store would have been $8.8 million compared to $8.2 million in Q4 last year, a 7.3% increase. The average sales per store is especially impressive given that they opened 9 new superstores in Q4 1996. New stores typically have lower sales volume than more mature stores. The average age of their stores is 3.1 years as of June 1996 compared to 2.7 years as of June 24, 1995. Their strategy has been to increase the average age of their stores. They anticipate increasing the age of their stores in FY 1997 despite the planned opening of 25-30 new stores.

Sales for FY 1996 increased 30.4% to $3.8 billion from $2.9 billion for last year. Comparable store sales increased 12.6% for FY 1996.

They continue to see the positive effect of their operating strategy on their gross margin. The gross margin for Q4 was 14% compared to 12.5% a year ago and 14% for Q3. This increase from the prior year as a percentage of net sales is really the result of several factors. First, they continue to leverage their occupancy costs due to the higher average sales per store. Second, they continue to see higher margins in their product sales. The last significant factor contributing to the increase in gross margins is the continued increase in service revenue, both in technical services and training as a percent of net sales. Service revenues typically have higher gross margins than merchandise sales. These service businesses still represent, in the aggregate, less than 10% of their total sales, but they expect to see their service revenues grow faster than their product sales.

When compared to Q3's gross margin, they have offsetting factors. Occupancy expense negatively impacted margin due to the anticipated lower sales per store in Q4 compared with Q3 since occupancy is effectively a fixed cost. Offsetting the occupancy cost were higher service revenues as a percent of total sales.

The gross margin for FY 1996 was 13.5% compared to 12.3% a year ago. This increase as a percent of net sales can be attributed to the same factors mentioned for the quarter as well as a reduction in inventory shrinkage in FY 1996.

Store operating expense was 9.1% of net sales for Q4 compared to 9.4% in Q4 1995. That was up compared to 8.3% of net sales last quarter. The increase in store operating expense as a percent of sales compared to Q3 was due to three factors. First, sales productivity. They expect store operating expense as a percentage of sales to increase in Q4 compared to Q3 due to the seasonally higher sales productivity in Q3, since certain of the store expenses are fixed. Second, higher personnel expense related to the increase in service revenue and lower sales per store. In general, while the growth in service revenue will enhance the gross margin, the related store operating expenses are higher for service revenue than for product sales. Third, they opened 9 new stores which typically have a higher expense percentage of sales than more mature stores.

For FY 1996, store operating expenses were 8.6% of net sales compared to 9% for FY 1995. This decline as a percentage of net sales is primarily attributable to the leveraging of store fixed costs due to the higher average sales per store plus lower net advertising expense resulting from increased vendor participation. These decreases were partially offset by the higher costs associated with the service revenue.

G&A expenses were 2.2% of net sales for Q4 compared with 1.9% in Q4 1995. The increase was primarily due to increases in incentive compensation costs which were partially offset by leveraging of personnel costs. In addition, they had added infrastructure last year to support the growth of their service businesses.

For FY 1996, G&A expense was 2% of net sales compared to 1.9% for FY 1995. This increase was primarily due to the professional fees and related costs associated with the acquisition review of Computer City in Q3 and increases in net compensation, partially offset again by leveraging personnel expenses.

BALANCE SHEET HIGHLIGHTS FOR Q4 AND FY 1996

The company had cash of $208 million as of June 29th compared to $296 million at the end of Q3 and $96 million a year ago. They expected their cash would drop by about $100 million from last quarter as their accounts payable ratio returned to more normal historical levels.

Accounts receivable were $148 million at the end of Q4 compared to $141 million at the end of Q3 and $104 million at the end of Q4 1995. These increases are due to the growth in their direct businesses which include Corporate, Government, Education, and Mail Order sales.

Inventories at the end of Q4 were $399 million or $3.6 million per store compared to $443 million or $4.3 million per store at the end of Q3 and $3.5 million per store a year ago. Inventories are in line with their expectations and are in great shape. For Q4, inventory turns were 7.8 times compared with 7.6 for the same quarter last year. This increase is due to the higher sales productivity in 1996 compared to 1995. For the full fiscal year, inventory turns were 7.7 times compared with 8.1 times a year ago. This decrease is due to the higher planned inventory levels in FY 1996, 20 new stores opened during the year, and the first quarter 1996 buildup of inventory for the Windows '95 introduction.

Accounts payable were $378 million at the end of Q4 which represent 95% of inventory. Accounts payable were $506 million or 114% of inventory at the end of Q3 and $283 million or 91% of inventory a year ago. As they mentioned in Q3, the 114% at the end of the quarter was unusual and they expected the percentage to return to its historical levels.

Their stockholder's equity increased to $326 million from $310 million at the end of Q3. The debt-to-capitalization ratio improved to 27% as of June 1996 versus 39% as of June 1995. There continues to be no bank borrowings under their $75 million unsecured bank line.

Cash flow defined as earnings before interest, taxes, depreciation, and amortization (EBITDA), improved significantly to $140 million from $65 million for FY 1995. Net capital expenditures totalled $12.9 million for Q4 and $47.4 million for the full fiscal year. Depreciation and amortization was approximately $7.6 million in Q4 and $27.6 million for the year. They expect capital expenditures for 1997 to be approximately $65-70 million.

OPERATIONAL OVERVIEW

They were extremely pleased to report outstanding results for Q4 and the full fiscal year. They achieved record earnings for the quarter and record sales and earnings for the full year.

CompUSA's Q4 was highlighted by many significant events. They acquired PCs Compleat, a leading direct reseller of brand name computers and peripherals for approximately 3 million shares of CompUSA common stock. PCs Compleat has been in operation since 1992 and has rapidly earned its position as one of the top Wintel-based companies in the PC mail order business. They believe that the acquisition of PCs Compleat will allow CompUSA to more rapidly and effectively reach their goal of becoming the premier reseller in the direct channel.

They announced a strategic alliance with InfoSource a computer training courseware development company for the creation of proprietary computer courseware for CompUSA. As part of the agreement, CompUSA acquired a 10% interest in InfoSource with rights to acquire additional equity under certain conditions in the future. This alliance will provide them with a source of high quality computer training courseware and skills assessment software that they feel will set them apart from the competition.

They opened their 100th computer superstore with grand openings in the San Antonio and Denver markets. Their training department was awarded an $18 million contract in partnership with Unisys Corporation to provide end-user training for the Social Security Administration's Intelligent Workstation Local-Area Network project. They believe that this contract, which is the largest training contract ever awarded to CompUSA will reinforce the company's position as one of the leading players in the training business. Their new Delivery and Installation service premiered chain-wide with the introduction of Tech Services vans at all their locations. They completed a company-wide rollout of their software sampler CompKid areas to all their superstores.

When looking at the full year, FY 1996 was an extremely exciting year for CompUSA with record sales and earnings. In addition to their strong financial performance they achieved several other significant milestones throughout the year.

For the full fiscal year, comp store sales were up 12.6% and gross margin increased to 13.5%. During Q3 they reached $1 billion in quarterly sales for the first time and reported their first $100 million sales week.

In September, they sold approximately 4 million shares of newly issued common stock which added approximately $77 million to CompUSA's Balance Sheet. They completed their first 2-for-1 split of the company's common stock which increased total shares outstanding at that time to approximately 42 million shares.

To better serve their customers nationwide, they opened 20 new computer superstores including locations in 18 markets. The CompUSA Web site premiered on the Internet at http://www.compusa.com allowing customers to obtain information about the company and encouraging them to browse the company's online catalog.

They launched CompUSA Integrated Services, or CIS, in 8 major markets to expand their networking and tech services capabilities and meet the growing demand for these services. They continue to test new store features such as a small-store prototype and new departments such as business centers and communications centers.

Finally, their team in Orange County achieved CompUSA's first single store million-dollar sales day and in May topped their own record with a $3 million sales day. Three other superstores also reported million-dollar days this year which is a remarkable accomplishment.

One of the major reasons for their success in 1996 is CompUSA's diversified offering. They believe that the most effective way to reach their customers' wide-ranging needs is to offer a set of separate but reliant businesses within their category -- retail, corporate, government, education, training, tech services, and mail order. As they have previously stated, it is their goal to become the premier provider of products and services in each of these areas. They believe that the combined synergies of their 7 businesses have the ability to achieve record results. CompUSA's significant sales gains, continuing gross margin improvement, and ongoing expense reduction underscore the strength of their operating plan.

For the year their gross margin increased to 13.5% from 12.3% in the previous year which is a tremendous increase. There are many reasons for this improvement. One of the significant factors was an increase in their higher margins services businesses. During the year their services businesses -- training and technical services -- grew at a faster rate than their other businesses and they expect this trend to continue.

In Q4 1996, they opened 9 new computer superstores including locations in Boise, Colorado Springs, Des Moines, Oklahoma City, and San Antonio which are all new markets for CompUSA. For the year they opened a total of 20 new units, more than double the number of stores opened during FY 1995. Today they operate 106 CompUSA computer superstores in 50 major markets across the USA. In order to better serve their customers nationwide and reinforce CompUSA's leadership position in the industry, they plan to maintain a comparable growth rate in FY 1997, with 25-30 new stores opening.

CompUSA's growth over the last year has created many opportunities for promotions within their organization, both in the field and at their corporate headquarters. One of the most recent promotions was that of Hal Compton who had the title of President, CompUSA Stores added to his existing role of Executive Vice President and COO of CompUSA. Hal is a veteran retailer who has played a critical role in advancements they have made during the last two year and they look forward to his continued contribution to CompUSA's success.

Fiscal 1996 has been a challenging and rewarding year for CompUSA. Both Q4 and the full year were punctuated by many significant accomplishments including record financial results. None of these achievements would have been possible without the dedication of their team members and the company is very proud of their hard-working commitment. They are reminded every day that they can't get over-confident. Their goal is to become a world-class company and to reach that goal they must stay focused on the bottom line and, most importantly, on meeting the needs of their customer. The CompUSA team is ready for that challenge and looks forward to achieving even greater results.

MERCHANDIZING HIGHLIGHTS AND OUTLOOK

Overall there has been little change in the products which are in demand. In the hardware category, notebook computers and high-end Pentium desktops were clearly the hottest items. Achieva notebooks in particular continue to do very well. Networking products also continue to sell well, especially Internet products and high-speed modems from US Robotics. Again, as computer connectivity and communications gain in popularity and become more feasible, these areas should continue to be very hot.

In software, Disney's Toy Story animated storybook has been a huge hit. In fact, it was the best selling new release in edutainment software in the company's history. In addition, entertainment titles such as War Craft II and War Craft II Expansion Pack by Davidson and Duke Nukem 3-D by GT Interactive continue to be hot. Software associated with the Internet, particularly Netscape Navigator continue to sell well which is a trend they expect to continue as the Internet continues to evolve.

Lastly, in the accessory category, mass storage and memory continue to do well as consumers take advantage of the drop in prices for these products and as software continues to require more computing resources. An explosive new category for them is Personal Digital Assistant products like US Robotics Pilot, which are really catching people's attention.

Product availability is an area which is always of interest. Overall, CompUSA has maintained strong in-stock position on virtually all products. Minor exceptions were Apple products which were highly constrained and the high-end Wintel notebooks where supply didn't keep up with demand. These product shortages were experienced industry-wide. However, they believe that CompUSA was affected to a much lesser extent and, overall, their inventory levels are very good.

APPLE COMPUTER

Lately it seems to the company that no discussion of the computer industry is complete without addressing Apple. On the downside, they firmly believe that if more Apple products had been available during the quarter, they would have achieved double-digit comparable store sales figures. On the upside, although Apple certainly has experienced their share of problems and perhaps some loss of market share, CompUSA believes they have a strong brand name and a good core of loyal customers. Recently CompUSA has seen some positive improvements at Apple and believe that they are moving in the right direction. Ultimately, CompUSA will sell whatever the end user will buy. And, it will be the customers who will decide Apple's fate, not CompUSA.

COMPETITIVE LANDSCAPE

They also continue to get questions about the competitive environment. They continue to view this as a less competitive environment as evidenced by recent announcements by several of their competitors. They believe that many competitors are having a challenging year despite the reliance on heavy promotional strategies. They have also seen some attempts to copy different features and services offered by CompUSA which haven't been executed well and have largely been unsuccessful. Retailers are always experimenting with the merchandizing and marketing of their products, whether it be increasing the number of SKUs they carry or increasing the floor space they allocate to different product lines. Regardless, they feel that CompUSA's competitive edge lies in their service and expertise. And, because their core customer is more experienced, a repeat buyer, CompUSA is not as dependent on the first-time buyer as many others in the category. CompUSA's operating model, which is based on 7 different businesses diversifies their customer base and helps insulate their overall business.

They also continue to field questions on how CompUSA is affected by intense competition among manufacturers. As they said last quarter, there are numerous manufacturers out there fighting for market share and more large manufacturers are coming. They expect to see some disruption and consolidation among the manufacturers in the future. This competition could be an advantage to retailers, especially CompUSA. The competition among the manufacturers has led to a great deal of price cutting. And, as prices are lowered, value increases and consumers become more willing to purchase computers. An added benefit is that, as the prices come down, manufacturers do more advertising, CompUSA can be less promotional and still grow their business.

During 1996 they opened 20 new stores. They are very pleased with the performance of these stores and believe this will be an outstanding group of stores. The results they achieved are due to several factors including their commitment to their General Manager In Training program which is producing great new managers, a strong grand opening strategy, and accelerated growth in their Corporate business. In Q4, their new store openings included two small-prototype stores. Both of these stores had outstanding grand openings. In fact their sales performance indicates that these markets could have supported full-size stores.

Perhaps their biggest news of the quarter was their acquisition of PCs Compleat. Although the combination is only 10 weeks old, they are frequently asked how the integration is going and what their future plans for PCs Compleat are. At this point they feel it is still premature to comment in depth on how the integration is going. However, they are pleased with the progress they made in securing merchandise previously unavailable to PCs Compleat and reducing their product pricing. They are continuing to explore many areas of operations that they believe will provide the greatest synergies and utilize the strengths of both companies. And, PCs Compleat has a strong management team whose bottom-line focus and commitment to the customer fits well within the CompUSA company culture. They are excited about the acquisition and believe it offers them an excellent opportunity to combine the strengths of both companies to rapidly improve their position in the direct channel.

The PCs Compleat acquisition and strategic alliance with InfoSource have raised questions about CompUSA's future acquisition plans. At this point they are not commenting on mergers or acquisitions prior to their consummation. Their goal is to become the premier provider in each of the 7 businesses they operate. They plan to achieve that goal either through internal growth or by acquisition.

In the current quarter, overall sales have been strong and they are optimistic that this trend will continue. They haven't seen any slowdown in demand but they are against the Windows '95 introduction last year and a comp store increase of 16.9%. Although the Windows '95 introduction fueled sales in Q1 last year, the quarter was also highly promotional. They do expect to see an improvement in the gross margin in Q1 compared to last year.

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* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.

(c) Copyright 1996, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

Transmitted: 8/22/96

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event.

Copyright 1996, The Motley Fool
All Rights Reserved. This material is for personal use only.
Republication and redissemination, including posting to news groups,
is expressly prohibited without the prior written consent of The Motley Fool.