Retail Track: Handleman's Turn To Glisten In Black Ink

Man, it sure is a pleasure writing about black ink; last week Navarre, this week Handleman.

The Troy, Mich.-based rackjobber reported net income of $5.7 million, or 24 cents per diluted share, on sales of $297.2 million in its fiscal fourth quarter, ended May 1.

While Handleman's net income decreased by nearly $2 million year over year (from $7.8 million, or 30 cents per diluted share), revenue increased 13.8% (from $261.2 million).

The company attributed the income differential to the Nov. 1 sale of its Anchor Bay Entertainment subsidiary. Although treated as a discontinued operation, it registered a $749,000 loss this year; last year it contributed after-tax income of $2.1 million.

For the fiscal year, the rack reported net income of $38.8 million, or $1.57 per diluted share, on sales of $1.2 billion. Handleman's net income the previous year was $27.7 million, or $1.06 per diluted share, on sales of $1.28 billion.

The company attributed the drop in its annual sales to 300 Kmart store closures and the loss of a regional discount department store chain.

Increased sales in Handleman's U.K. and Canadian operations partially offset the company's U.S. revenue decrease.

Looking more closely at Handleman's year-end numbers, its gross profit margin increased slightly to 20.6% of revenue, compared with 20.5% in fiscal 2003.

But selling, general and administrative costs grew faster than profit margin: The company's 2004 SG&A was 16.1% of revenue, compared with 15.7% in the previous year.

Handleman cited new customer initiatives and customer reconciliations for the increased expenses.

For the year, Handleman generated $71.8 million in adjusted earnings before interest, taxes, depreciation and amortization, compared with $83.3 million in the previous year.

During the year, the company repurchased 2.6 million shares. This leaves 2.2 million available in its common stock repurchase program.

At the same time Handleman released its results, the board of directors declared a dividend of seven cents per share.

Handleman said it expects music sales to continue growing and estimated revenue and earnings will improve by a percentage in the low single digits.

In a statement, chairman/CEO Steve Strome said: "As we enter fiscal 2005, we look to grow our core music category management and distribution business, and continue returning capital to our shareholders through our stock purchase and dividend programs."

The company is awaiting results of a test conducted with a current customer––which Handleman would not name, but sources say is Best Buy––to see if it will begin racking part of that chain.

Handleman currently sells Best Buy deep catalog, and stocks and sets up music departments in the consumer electronics chain's new stores.

Handleman also reported that it had recently begun category management for another national retailer that is not yet a customer. Sources say this potential customer is Circuit City.

Handleman stock closed at $22.52 June 8. The company released its results after the close of trading.



COOL IN-STORE: Dimple Records had the pleasure of hosting a Joe Satriani in-store last month. The record outlet partnered with a Sacramento guitar store, Skip's Music, for the event.

The five-unit Dimple chain's flagship store in downtown Sacramento measures 14,000 square feet, enough space for a stage.

"I thought there would be 300 people––I had no idea," says Dylyn Radakovitz, who co-owns Dimple with her husband John.

People started arriving for Satriani's in-store two hours before, Dylyn reports. "When he came in to do a soundcheck, he got so psyched up by the crowd that he played a couple of songs."

The event drew 1,300 people. Satriani––who was promoting his album "Is There Love in Space?"––was only supposed to play a half-hour set. He wound up playing for an hour, then stuck around for another two hours to sign records for customers.

John says the in-store was a good illustration of the chain's slogan, which is: "Dimple: The insanity begins here."