Marantz Eager to Erase Loss Streak : Revival Hinges on VHS, Home Entertainment Systems

Sometimes it seems as if the Tushinsky brothers were made for the stereo business. In Japanese, in some contexts, tsushin means electronic communications; ski means to like. And the Tushinskys sure do like home electronics--even if the business doesn’t always like them.

Joseph and Fred Tushinsky run Marantz, the Chatsworth audio firm that has been losing money hand over fist for years because of unfortunate circumstances and some miscues by the Tushinskys themselves, who had to struggle at one time to avoid bankruptcy.

Japan and electronics are at the heart of their story. Once the sole distributors of Sony tape recorders in this hemisphere, about 25 years ago they turned down the chance to distribute Sony transistor radios, which they now admit was sort of like refusing a chance to buy all the McDonald’s restaurants in the country before anyone ever heard of golden arches.

Shell of Former Self

In 1979 Sony pulled the plug on the Tushinskys altogether, canceling their distributorship. The company has lost money on operations ever since.

The bad news from Sony came at a bad time, too. The stereo business, long a Marantz staple, was in the doldrums, and the company’s first attempt to ride the video-recorder bandwagon failed when the Tushinskys chose the short-playing Beta technology--just when consumers were opting for an alternative, called VHS, that would play several hours longer.

Marantz is now a shell of its former self. The company is down to 115 employees from a worldwide peak of 5,000 in 1976, and sold off all of its production facilities five years ago to pay debts. It even sold its flamboyant headquarters, the shiny glass-and-concrete building at Mason Avenue and Nordhoff Street in which it now leases space.

But there is life in the old Tushinskys yet.

In 1984 the company almost broke even on an operating basis for the first time since the Sony debacle. This fall, Marantz plans to introduce a line of VHS home recording systems in time for the holiday buying season, as well as a new set of audio-video home entertainment systems and a new, all-in-one stereo system that will have considerable power but will sell for under $500.

How much life there is in Marantz remains to be seen. Industry experts say it has not been a major player in the market for the all-in-one systems, which are packages of a single manufacturer’s stereo components that are ready to be plugged in. Experts say these systems are the only segment of the industry besides compact disc systems that is growing much. And it continues to face keen competition.

“Their record stinks,” said Paul Tegel, who follows the company for the Midwestern brokerage firm, Buys MacGregor MacNaughton Greenawalt and Co. Tegel is nevertheless intrigued by Marantz’s prospects.

Tegel’s theory is that the country is full of “yuppies” who bought stereos a decade ago and have not been in a stereo store since. Sooner or later, he theorizes, they will replace their aging systems, add compact disc players, or trade in the cheap compact stereos they used in college for more sophisticated components such as those sold by Marantz. Some older yuppies even have kids who will get stereos in the next few years.

“I’m intrigued by the possibility of an up-cycle in the audio business,” Tegel said.

The Tushinskys can’t wait for the $2.3-billion-a-year retail industry to turn around. They hope their big push into home video will account for 60% of Marantz sales by the end of 1986 (stereo equipment is 90% now), and they said they believe they will succeed.

“You’re talking to people who don’t believe in bankruptcy,” said Joseph Tushinsky, the company’s 74-year-old chairman.

Fears of Me-Too Product

Not everyone is so confident. Harris Berenholz, an analyst with Warburg, Pincus, a New York investment house, said he fears the Marantz VCR will be just another me-too product, and that the Tushinskys might not be able to restore profitability at the company.

“I’m disappointed they haven’t capitalized on their assets,” he said. “Probably a change of management or a takeover would reignite the company.”

Marantz lost $138,000 on revenue of $44 million last year--not a bad showing, considering that the company lost more than $1 million on operations in 1983. It did show a profit of $10.3 million that year, on revenue of $33.9 million, because it persuaded its unsecured creditors to drop $18.5 million in debt in exchange for $5.7 million in cash and 100,000 warrants, which give the holder the right to buy stock at a set price, in this case $4.75. The banks were not getting any interest on the debt anyway.

In 1982 Marantz lost $11.5 million on revenue of $40.9 million, and in 1981 it lost $5.2 million on revenue of $48.4 million.

With the major debt wiped off its balance sheet, and with $23 million in past losses excusing it from taxes on the same amount of future profits, the company’s finances are strong. There is nearly no long-term debt, its assets are virtually all saleable inventory or accounts receivable, and its net worth is $16.5 million.

“The key to the company is the financial position,” said Arthur Winston, who follows Marantz for Glickenhaus & Co., a New York brokerage. “They’ve divested a number of operations, the debt was eradicated. The stock is awfully cheap.”

Marantz stock closed unchanged Monday at $4.50 on the New York exchange.

The three living Tushinsky brothers hold about 22% of the stock, a controlling interest that has helped keep Joseph Tushinsky chairman and 57-year-old Fred Tushinsky president. Brother Nate is retired. A fourth Tushinsky sibling, Irving, also was in the business before his death nearly 10 years ago.

Superscope Founders

The four brothers did not start Marantz. Born into a musical family in New York, Joseph Tushinsky was a conductor and producer who brought the family to Los Angeles to work in movies. The brothers eventually formed Superscope, which invented a wide-screen process for motion pictures.

All four also were musicians and audiophiles, and in 1957 they heard about a Japanese company that was making a terrific microphone for use with stereo tape recorders, then rare and costly devices. In Japan, they learned, the company also made stereo recorders for about 5% of their American retail price.

That company later would be called Sony, and the Tushinskys would import its recording machines under the name Sony Superscope. At its peak in the early 1970s, that contract with Sony was worth $80 million in yearly sales. When it ended in 1979, it was worth $65 million.

“We never really thought they’d go through” with the cutoff, Fred Tushinsky said. But Sony decided to work through its own U.S. subsidiary.

Not Out of Woods

Superscope bought Marantz from Sol Marantz in 1962 when the business was still small, with just about $1 million in annual sales, and a year or two later moved its manufacturing operations to the Far East.

Despite its improved position, Marantz is not out of the woods. Because of weak holiday sales, it had a disappointing first quarter, posting losses of $983,000 on sales of $7.4 million, compared to losses of $798,000 on sales of $9.1 million for the same period last year.

“I’m not too happy about the quarter,” said Berenholz. “It’s impossible to predict anymore.”

MARANTZ CO. AT A GLANCE Based in Chatsworth, the main business of Marantz Co. is the design and sale of consumer electronics products, especially stereo equipment. Marantz has 115 employees and 2.3 million shares of common stock outstanding.