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CompUSA to cut jobs
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June 24, 1999: 1:31 p.m. ET
Retailer to close up to 14 stores, resulting in $40-$50 million charge
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NEW YORK (CNNfn) - Computer retailer CompUSA said Thursday it will cut up to 1,500 jobs, close some stores, and take a charge of up to $50 million in an effort to brighten its lackluster financial results.
CompUSA (CPU) currently operates 211 stores in the United States, but has faced increased competition from direct, build-to-order sellers such as Gateway (GTW) and Dell Computer (DELL).
CompUSA said it will close four stores in the "near future" and anticipates that it will close an additional five to 10 stores which it says have been under-performing.
The Dallas-based retailer said it will add workers in some areas but, with the store closing and other changes, will actually lose between 1,000 and 1,500 jobs out of a total of approximately 21,000, or up to 7 percent of its workforce..
CompUSA expects take charges of between $40 million and $50 million, or 43 cents to 54 cents per diluted share, because of these changes. Most of the charges will be recorded during the fiscal fourth quarter ending June 26, with the remainder during the first and second quarters of fiscal 2000.
CompUSA has been dealing with many of the pressures "brick and mortar" stores face in the age of the Internet, according to Ursula Moran, computer analyst at Sanford C. Bernstein.
The company must have large inventory on hand to offer customers choice, and must pay sales and checkout staff. Conversely, Dell makes computers to order and the sales process can be handled online. In addition, CompUSA's focus may be too narrow.
"They are too dependent on the sale of computer hardware," said Moran. "About 60 percent of their sales are associated with hardware compared to about 20 percent or less for other retailers like Circuit City or Best Buy."
This has been particularly difficult since computer-related companies have been facing a much more competitive market with tighter profit margins.
CompUSA Chief Executive Officer James Halpin said it was time for the company to look inward after concentrating on rapid growth and its 1998 acquisition of Computer City.
"We are shifting our focus to improving the operations of every aspect of our company," said Halpin. "We believe this focus will restore our financial performance by increasing gross margins, reducing operating costs, improving customer service and capitalizing on strategic growth opportunities."
To that end, the company announced changes in distribution and training which it believes will help it streamline its operations and reduce costs.
CompUSA plans to adjust their merchandise categories to bring in more of the emerging technologies, including hand-held devices such as personal digital assistants (PDAs), PC and console games, and MP3 Internet music distribution technology.
This is a step in the right direction, said Bernstein's Moran, since these areas are proving to have higher profit margins and are garnering stronger consumer interest.
CompUSA also said it will distribute its computers to its direct sales customers - business, government and educational clients -- from a single distribution center, hoping to increase efficiency and reduce costs.
In CompUSA's most recent quarterly report, the retailer said it lost $4.9 million, or 5 cents per diluted share, in the third quarter ended March 27. The company has had disappointing results for the past three quarters.
The company's struggles have raised speculation that CompUSA may be ripe for a buyout, with office supply store chain Staples (SPLS) being the leading contender, but Thursday's announcement may mean CompUSA isn't ready for such a solution.
"The computer remains a sufficiently complex product that consumers still need help in picking one out," said Moran.
That, she said, is CompUSA's forte and gives it somewhat of an advantage over its online counterparts in that a customer in a store may be more easily coaxed into picking up printers, monitors and other peripherals.
CompUSA shares were down 3/8 to 7-13/16 in Thursday late-morning trading.
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CompUSA
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