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Sales, Income Up At Handleman

20 Aug, 2002 By: Hive News

Brisk sales and shuttering the Itsy Bitsy Co. helped Handleman Co. to increased sales and net income for its fiscal first quarter 2003, the company reported today.

Sales for the quarter ended July 27 increased 4 percent to $271 million from $261.1 million for the first quarter of last year. Net income was $2.7 million, or 10 cents per diluted share, compared to $2 million, or 8 cents per diluted share, for the first quarter of last year.

Handleman's North Coast Entertainment (NCE) division had first quarter net sales of $31.1 million, compared to $25.4 million for the first quarter of fiscal 2002, an increase of 22 percent. The higher sales this year occurred primarily at Anchor Bay Entertainment, which continued to expand the number of titles it offers consumers on DVD.

NCE's operating income for the first quarter of fiscal 2003 was $0.8 million, compared to an operating loss of $4 million last year. The operating loss last year was primarily due to results at The itsy bitsy Entertainment Co. The unit was discontinued during the second half of last fiscal year. Both Anchor Bay and the Madacy unit were profitable during the first quarter of this fiscal year.

"We are relatively pleased with our results for the first quarter, which historically has been the company's weakest for both sales and earnings,” said chairman and CEO Stephen Strome. “We achieved record sales for a first quarter and improved net income, despite weakness in both the music industry and overall economy.”

The rackjobber also felt the impact of decreasing CD sales, however, faulting music downloading and weak releases for the hit.

“Music industry sales continue to be impacted by the lack of strong-selling new releases, illegal duplication and downloading over the Internet through the use of file sharing services,” Strome said. “he popularity of new artists, which fuel music industry sales, is cyclical. We expect new artists and genres will emerge and again drive music industry sales. In addition, we anticipate that the music labels will further support the encryption of CDs, which will make illegal copying of CDs increasingly difficult."

The Handleman Entertainment Resources (H.E.R.) division had net sales of $243.9 million, compared to $239.4 million in the first quarter of last year. The increase was generated by higher sales in the company's United Kingdom operation. H.E.R.'s first quarter operating income (i.e., income before interest, income taxes and minority interest), was $3.6 million, down from $10.2 million last year. The decline in operating income reflects the weakness within the overall music industry. Also during the quarter, H.E.R.'s sales mix changed, resulting in a higher percentage of sales at a lower gross profit margin. In addition, selling, general and administrative expenses this year increased, due in part to the timing of startup costs at Handleman Online and nonrecurring fees.

"We ended the quarter with a strong balance sheet. Our working capital was reduced by over $25 million from the end of July last year. This includes a reduction in our accounts receivable balance of over $48 million and a reduction in merchandise inventories of over $12 million,” Strome said. “The company's long-term debt to total capitalization was less than 10 percent compared to 24 percent last year. Maintaining a strong balance sheet positions the company to take advantage of investment opportunities and withstand turbulent events."

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