CompUSA rescues Good Guys
$55 million buy comes as company posts Q2 loss
By Jennifer Waters, CBS.MarketWatch.com
Last Update: 4:16 PM ET Sept. 29, 2003
CHICAGO (CBS.MW) -- Struggling with plunging earnings and a challenging economic environment, electronics retailer Good Guys said Monday that CompUSA will bail it out in a $55.3 million acquisition.
Shares of Good Guys (GGUY: news, chart, profile) surged 33 percent to an intraday high of $2.01 before settling at $1.97 at the close.
The offer represents a premium of 37 percent to Friday's closing price of $1.50. CompUSA - owned by Latin American billionaire Carlos Slim -- also immediately will invest $5 million in Good Guys through a two-year note that will be convertible into common stock at $2.05 a share.
The news marks another sign of the convergence of technology and entertainment. It also came shortly before the Alameda, Calif.-based retailer of high-end entertainment electronics reported a quarterly loss of $6.9 million, or 25 cents a share, compared to last year's loss of $1.8 million, or 7 cents a share. Sales for the second quarter tumbled more than 14 percent to $152.2 million from $177.5 million. Sales at stores open longer than a year declined 13 percent.
To make matters worse, gross profit margins fell to 26.8 percent of sales from 28.6 percent a year ago as Good Guys stepped up promotions to clear away outdated products. Selling and administrative expenses took a bigger chunk of sales at 29 percent compared to last year's 27.5 percent.
Earlier this month, the company warned that sales of DVD players, TVs and home audio equipment were falling steeply, offsetting strong sales gains of newer products such as liquid crystal and plasma displays, HDTV set-top boxes and DVD recorders.
The company does not expect to reverse sales trends through the third quarter, generally its most profitable.
"Good Guys continues to be impacted by the challenging economic environment as evidenced in the lower sales volume and decline in store traffic during the first half of the year," Chief Executive Kenneth Weller said in the earnings statement.
CompUSA's rescue pumps new life into a company whose stock price has not meandered above $5 for nearly three years. In the last year, shares have floated from a range of 97 cents a share to $2.97 a share.
"The impact of the economic environment on our industry, particularly in Northern California, and the company's need for additional capital to meet its longer term objectives, were key drivers of the decision to go forward with the transaction," Weller said.
"Our combination with CompUSA should greatly strengthen the resources of the company and enhances the company's prospects for future success," he added.
The deal could prove pivotal for CompUSA, as the fusion of technology and entertainment quickly comes to pass. "This deal dovetails perfectly with our long-term technology convergence strategy," CompUSA CEO Hal Compton said in a statement.
"We want to offer the seamless technology solutions our customers' lifestyles demand and, with Good Guys' solid reputation in delivering high-end entertainment technology, our offering just becomes that much stronger," Compton said. "Good Guys owns a niche that's highly complementary with our own."
Just last week Dell unveiled its combination TV screen and computer monitor, the type of product that both stores could sell when it becomes a common offering from other manufacturers.
The companies said Good Guys will continue to operate under its own name. It has 71 stores in California, Nevada, Oregon and Washington. CompUSA has 226 stores in 90 major metro markets.
The deal is contingent on shareholder and regulatory approvals. CompUSA said the deal will be funded by its parent U.S. Commercial.
Meanwhile, the deal with Good Guys is putting pressure on shares of Circuit City (CC: news, chart, profile), which finished down 5 percent, or 50 cents, to $9.70. In June, CompUSA's Slim offered $8 a share, or $1.5 billion, for the electronics chain. The company rebuffed the offer, though the shares were trading at $6.75 a share at the time. See full story.
Jennifer Waters is the Chicago bureau chief for CBS.MarketWatch.com.
