COMPUSA SEES SHRINKING PROFITS IN Q2.

Computer retailing giant CompUSA Inc reported second-quarter earnings that plunged 54% year-over-year to $15.6m. Sales for the quarter rose 21.9% to $1.78bn. Earnings per share amounted to $0.17, besting First Call estimates by a penny, as Wall Street was expecting a significant decline on the bottom line. Comparable store sales for the quarter fell 4.7% for the 148 stores open a year or more. Six-month net income fell 58.8% to $23.7m on revenue up 19.6% at $3.17bn. Comparable store sales for the period slipped 3.3% and earnings per share fell 56.7% to $0.26 for the six months. The Dallas-based company blames the quarter's numbers on several factors, including continuing work on converting the acquired (and money-losing) Computer City stores and the trends of increased unit sales growth and declining average selling prices. The company says that in order to generate increased traffic at the converted stores it had to increase marketing and promotional efforts which, in turn, lowered margins. Gross margins for the quarter stood at $13.5%, down from 14.7% in the year-ago period. Although the stores began to come around during the quarter, they still saw only half the sales of typical CompUSA stores, according to the company. Compared to the second quarter of fiscal 1998, both desktop and notebook unit sales increased by more than 50% in the second quarter of fiscal 1999 while average selling prices for both categories decreased roughly 20%. Average sales per store fell 18% during the quarter. The company says it expects comparable store sales to improve sequentially in the third quarter as it begins to cycle the decrease in average selling prices of a year ago. And due to expected lower promotional activities in the third quarter, gross margins are also expected to improve. The good news will be tempered somewhat by an increase in expenses for the company's internet business of about $2m to $3m per quarter.