Loss at Gateway Widens as Quarterly Sales Fall 17%
Computer maker Gateway Inc. said Thursday that intense pricing pressure from competitors and lower traffic in its retail stores pulled down revenue by 17% and widened its loss in the fourth quarter.
Gateway lost $114 million, or 35 cents a share, compared with a loss of $72 million, or 22 cents, in the fourth quarter of 2002. It was the company’s eighth consecutive quarter in the red.
Revenue was $875 million, off from $1.06 billion in the year-earlier quarter. The decline was partly because of the closure of 83 Gateway stores last year.
Executives of the Poway, Calif.-based company said they wouldn’t offer any financial guidance for the current quarter until late February or early March. But Chief Financial Officer Rod Sherwood reiterated in an interview that Gateway aimed to turn a profit in 2005.
Excluding charges for restructuring and store closures, Gateway’s earnings of 20 cents a share were in line with the expectations of analysts surveyed by Thomson First Call. Gateway shares, which rose 4 cents in regular trading Thursday to close at $4.09 on the New York Stock Exchange, rose an additional 6 cents in extended trading after the results were released.
For the full year, Gateway lost $526 million, or $1.62 a share, compared with $309 million, or 95 cents, in 2002. Sales in 2003 dropped 18% to $3.4 billion from $4.2 billion.
Gateway last year spent $73 million on a stylish renovation, guided by Starbucks coffeehouse designer Arthur Rubinfeld, of its remaining 185 retail stores, hoping to make them more alluring to customers. Chief Executive Ted Waitt has invested heavily in the stores in the belief that consumers would be more willing to buy computers and related electronic devices if they could see them in a user-friendly setting.
“One of the major factors that is supposed to help them is the transformation of the retail experience,” said Michelle Lin Gutierrez, an analyst with Schwab SoundView Technologies in San Francisco. “They put a lot of money into transforming it, and it didn’t help them this quarter.”
Waitt expressed disappointment with Gateway’s store traffic and said he was examining how to address the issue.
“While our stores look great,” Waitt told financial analysts on a conference call, “their locations are not optimal.”
He said each store was being reexamined for its profit potential.
“We’re looking at capital investment, what’s the payback, what would it take to reposition some of our stores,” he said.
PC shipments in the fourth quarter fell to 526,000, a decline of 27% from the same period in 2002. Gateway sales were hurt by aggressive price cuts from rival computer makers, particularly Hewlett-Packard Co.
Waitt has tried to reduce Gateway’s reliance on PCs by expanding its lineup of higher-margin consumer electronics offerings, such as digital cameras, flat-screen televisions and digital music players. Such devices accounted for $268 million, or 31%, of fourth-quarter revenue, up from 18% a year earlier.
“We’re pleased with the growth in consumer electronics, and their gross margins,” Sherwood said in the interview. “PCs are generally doing well in the professional segment ... but clearly we need to pick up performance in the consumer area.”
Gateway will continue to offer multiple configurations of desktop and notebook computers at attractive prices in order to drum up business, Sherwood said.
