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Handleman Says Profit Falls 33 Percent for Quarter

Posted on: Monday, 27 February 2006, 15:00 CST

By Greta Guest, Detroit Free Press

Feb. 25--Handleman Co. reported that profits declined by nearly a third Friday, missing Wall Street's expectations and prompting investors to drive the Troy-based music distributor's shares down 17 percent.

Handleman shares closed down $1.97 at $9.61 Friday on the New York Stock Exchange.

Handleman said earnings for the fiscal third quarter ending Jan. 31 were $13.98 million, or 68 cents a share, down from $20.77 million, or 94 cents a share, in the same quarter of 2005. Analysts had expected an average of 93 cents a share for the quarter, Bloomberg News data show.

Handleman revenues rose 5.6 percent to $485 million from $459.3 million in the same quarter a year ago.

The company attributed the revenue increase to its acquisition of Crave Entertainment Group, which it purchased in November, and growth in its British operations. Crave added about $53.8 million in revenue and Handleman's British operation saw a $14.1-million increase, or about a 13 percent rise.

But Stephen Strome, chairman and CEO of Handleman, said revenues were hurt by the loss of 425 customers' stores to other suppliers, a change previously announced that occurred during the first and second quarters. The breakdown was 25 Wal-Mart stores and 400 Kmart stores. The loss of those Kmart stores represented an estimated $50 million annual reduction in sales, the company said.

The company offered less-than-encouraging guidance for the rest of the current fiscal year, saying that declining music industry sales and uncertainty about upcoming new music releases plus recent softness in console video game industry sales "are expected to have a negative impact on the company's near-term operating performance."

Handleman still provides category management and distribution to about 1,050 Wal-Mart stores in the United States, 250 stores in Canada and 280 stores in Britain. Wal-Mart is the largest customer representing 74 percent of annual sales and Kmart represents 15 percent of sales. Other clients bring in the other 11 percent.

The company repurchased 500,000 shares during the quarter at an average price of $12.97. That represents 57 percent of the 1.9 million shares authorized for repurchase.

Handleman declared a quarterly cash dividend of 8 cents a share that will be payable on April 7 to shareholders of record on March 21.

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Source: Detroit Free Press

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