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FOOL PLATE SPECIAL
An Investment Opinion
by Louis Corrigan
Tweeter Twitters Higher
<% ' AvantGo:FoolPlate %>With all the casualties in the consumer electronics space this decade, and with Best Buy <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %> and Circuit City <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CC)") else Response.Write("(NYSE: CC)") end if %> seemingly reigning supreme, it seems odd to find a little tweety bird retailer like Tweeter Home Entertainment Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TWTR)") else Response.Write("(Nasdaq: TWTR)") end if %>, a 52-store chain, on our leaders' board. But there it is, up $2 9/16 to $18, not far from its July IPO price of $17, but up nicely from its late-October low of $10 5/8. Better-than-expected earnings is the story today.
Revenue for the fourth quarter ended September 30 rose 22.3% to $53.5 million on the strength of a 15.3% increase in overall comp-store sales. The firm's New England-based Tweeter stores saw same-store sales increase 17.9% while its Mid-Atlantic Bryn Mawr group (acquired in May 1996) enjoyed a 25.7% same-store gain, and the Atlanta-based HiFi Buys (acquired in May 1997) saw a 6.3% increase. As a result, net income before extraordinary charges was $1.08 million versus a loss of $0.46 million a year ago. That was good for $0.16 per share ($0.11 after charges) compared to a loss of $0.70 last year. That beat the three-analyst consensus estimate of $0.09 per share.
For the year, revenue was up 75.3% to $232.3 million as a result of the HiFi Buys acquisition and a 12.5% jump in overall comp-store sales. Net income before extraordinary charges rose to $5.6 million ($5.3 million after the charges) compared to just $0.15 million for FY97. Earnings per share were $1.11, or $1.04 after the charges, which were related to the early extinguishment of debt. The company raised about $35 million in the IPO and used it to cut long-term debt to just $5.3 million from $30.9 million a year ago.
As a retailer of mid- to high-end audio and video consumer electronics products, Tweeter plans to grow partly by acquiring smaller regional chains that operate in that traditional small-store market niche that's been pressured by Best Buy and Circuit City, but is still quite profitable given enough scale and purchasing power. While Tweeter offers guaranteed low prices, its real emphasis is on well-trained sales personnel. Sales consultants initially receive six weeks of classroom training and then 5 to 15 days of additional training each year. As new digital consumer electronics products such as DVD roll out, such training stands to be a plus and a great means for Tweeter to differentiate itself from the megastores.
So far, Tweeter appears to be executing to plan, with operating margins rising to 5.2% for the year from 1.5% in FY97 thanks to lower selling expenses (24.5% of revenue vs. 26.8%) and lower administrative expenses (4.8% of revenue vs. 6.1%). Like all consolidation plays, Tweeter has to keep selling its story to maintain access to financing. That may prove a challenge for a company with a market cap of just $121 million. Still, as a satisfied HiFi Buys shopper myself, I can see the appeal.<% ' AvantGo:End %>
<% ' AvantGo:Ups %>Internet portal and software company Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> gained another $2 9/16 to $41 13/16 on continued speculation that the company's Navigator browser will replace Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> Internet Explorer as the browser of choice for online services conglomerate America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>. The rumor mill was set in motion yesterday by a report in The Wall Street Journal. AOL picked up $4 3/4 to $88 1/2 this morning.
Semiconductors and digital signal processing (DSP) devices maker Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> tacked on $3 1/16 to $75 5/16 after BancBoston Robertson Stephens raised its rating to "strong buy" from "buy," citing developments in the DSP sector that could boost the company's share in that market to 60%-70% from its current share of about 45%.
Radio station operator Clear Channel Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCU)") else Response.Write("(NYSE: CCU)") end if %> advanced $2 1/2 to $49 1/2 after the company and merger partner Jacor Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JCOR)") else Response.Write("(Nasdaq: JCOR)") end if %> said they will sell 20 radio stations to gain regulatory approval of their proposed combination. The number is lower than the 23 stations some analysts had expected the companies to part with. The move will affect overlapping stations in Louisville, Kentucky; Cleveland and Dayton, Ohio; and Jacksonville and St. Petersburg, Florida. Jacor picked up $2 3/4 to $62 this morning.
Cellular and personal communications services (PCS) devices chipsets maker DSP Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DSP)") else Response.Write("(NYSE: DSP)") end if %> added $2 1/16 to $13 thanks to a NationsBanc Montgomery Securities upgrade to "buy" from "hold."
Pharmaceuticals developer Vical Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VICL)") else Response.Write("(Nasdaq: VICL)") end if %> moved up $1 5/8 to $16 7/8 after saying data from a Phase I/II clinical trial of its Leuvectin anti-cancer agent showed that the drug was "well-tolerated" in a study group of about 20 patients with prostate cancer and may have been effective in causing a targeted immune response against cancerous prostate cells.
Cable TV network operator and publisher Time Warner <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TWX)") else Response.Write("(NYSE: TWX)") end if %> climbed $4 3/8 to $103 1/4 after setting a two-for-one stock split effective Dec. 15.
Israeli telecommunications and defense electronics equipment developer Tadiran Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TAD)") else Response.Write("(NYSE: TAD)") end if %> added $3 5/16 to $35 13/16 after Israeli investment holding company Koor Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KOR)") else Response.Write("(NYSE: KOR)") end if %> raised its cash buyout offer for the firm to $36 3/8 per American depositary share. Earlier this month, Koor had submitted a bid of $31.15 per share.
Measurement, color printing, and video and networking firm Tektronix Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TEK)") else Response.Write("(NYSE: TEK)") end if %> moved up $2 1/16 to $22 5/8 after Merrill Lynch started coverage of the company with a near-term and long-term "buy" rating. Merrill said the firm's shares are undervalued considering its leading position in the market for laser quality desktop color printers and its lineup of "blockbuster" new products.
Earnings Movers
Catherines Stores Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CATH)") else Response.Write("(Nasdaq: CATH)") end if %> up $1/2 to $11 1/2; Q3 EPS: $0.22 vs. $0.01 last year; Estimate: $0.16
Culp Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CFI)") else Response.Write("(NYSE: CFI)") end if %> up $15/16 to $8 9/16; fiscal Q2 EPS: $0.10 vs. $0.35 last year; Estimate: $0.02
Gerber Scientific <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRB)") else Response.Write("(NYSE: GRB)") end if %> up $3 5/16 to $23 9/16; fiscal Q2 EPS: $0.33 vs. $0.24 last year; Estimate: $0.32
Sterling Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SSW)") else Response.Write("(NYSE: SSW)") end if %> up $1 7/16 to $26 1/4; fiscal Q4 EPS: $0.43 (excluding charges) vs. $0.29 last year; Estimate: $0.42<% ' AvantGo:End %>
<% ' AvantGo:Downs %>American Airlines operator AMR Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMR)") else Response.Write("(NYSE: AMR)") end if %> dove $2 3/8 to $62 3/8 after American said it signed an agreement to buy Reno Air <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RENO)") else Response.Write("(Nasdaq: RENO)") end if %> for $7.75 per share in cash, about a 7% premium over Reno's Wednesday closing price of $7.25 per share.
Satellite communications company PanAmSat Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPOT)") else Response.Write("(Nasdaq: SPOT)") end if %> dropped $2 5/8 to $39 1/16 after it disclosed in a SEC filing that battery problems caused temporary service disruptions at one of its satellites, saying possible future interruptions "could result in a claim by affected customers for termination of their transponder agreements." PanAmSat is 81% owned by General Motors subsidiary Hughes Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GMH)") else Response.Write("(NYSE: GMH)") end if %>.
Internet audio and video streaming software developer RealNetworks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RNWK)") else Response.Write("(Nasdaq: RNWK)") end if %> tumbled $3 1/2 to $39 3/8 this morning after Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> announcement late yesterday that it will begin selling its roughly 10% non-voting stake in the company today on the open market. For the full story, head to this morning's Breakfast With the Fool.
Tour bus manufacturer Metrotrans Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTRN)") else Response.Write("(Nasdaq: MTRN)") end if %> braked $1 1/2 to $5 1/2 after it delayed the filing of its Q3 earnings to no later than Nov. 23. One analyst surveyed by First Call expects EPS of $0.20, $0.03 below last year's figure.
Laser beam mask making equipment maker Etec Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ETEC)") else Response.Write("(Nasdaq: ETEC)") end if %> burned off $2 7/16 to $28 9/16 after CEO Steve Cooper said the company anticipates fiscal 1999 revenues flat with 1998 levels and earnings 30% to 40% below last year's $2.05 per share result. Fiscal Q1 EPS was $0.43, $0.02 above both last year's mark and the Street's consensus estimate.
Discount retailer Consolidated Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNS)") else Response.Write("(NYSE: CNS)") end if %> fell $15/16 to $19 7/8 after Bear, Stearns & Co. lowered its rating on the company to "neutral" from "attractive."
Hibbett Sporting Goods <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HIBB)") else Response.Write("(Nasdaq: HIBB)") end if %> shrank $2 13/16 to $30 11/16 after it announced Q3 EPS of $0.27, beating the year-ago $0.21 number but flat with market projections. Gross margins decreased slightly to 30.3% compared with last year's number of 30.5%.
Foot Locker stores operator and recent Daily Trouble Venator Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %> ran down $1/2 to $9 1/2 after it reported losses from continuing operations of $0.29 cents per share, a nickel below analysts' projections and well off last year's $0.37 per share profit. The Fool spoke to Venator's Investor Relations VP Juris Pagrabs in an October StockTalk interview.
Optical thin film coated component maker Optical Coating Laboratory <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OCLI)") else Response.Write("(Nasdaq: OCLI)") end if %>, whose products are used to manage light in photocopiers, fax machines, and other devices, cracked $1 5/16 to $17 9/16 this morning after it said it expects a $0.29 per share after-tax loss in Q4 for the sale of its MMG glass fabrication assets to a Swiss company.
Power conversion circuit manufacturer Power Integrations <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: POWI)") else Response.Write("(Nasdaq: POWI)") end if %> drained $2 1/8 to $20 3/4 this morning after it was cut to "buy" from "strong buy" by Hambrecht & Quist.
Home furnishings retailer HomeBase Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HBI)") else Response.Write("(NYSE: HBI)") end if %> slid $1 3/16 to $6 7/16 after it reported Q3 EPS of $0.17, a penny better than last year's pre-charge figure and flat with the consensus estimate of four analysts. Same-store sales were off 0.9% from a year ago.<% ' AvantGo:End %>
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), another Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |