June 28, 2007

By By Ed Christman, N.Y.

The Handleman Co. lost $37.5 million, or $1.85 per share, on sales of $268.5 million in its fiscal fourth-quarter ended April 28. That brings the company's total loss for the year to $53.4 million, or $2.65 per share, on revenues of $1.3 billion.

That compares with a profit of $13.6 million, or 71 cents per share, on revenues of $1.3 billion in the previous fiscal year.

The company attributed the loss to an increase in selling, general and administrative expenses due to start-up costs related to a new business arrangement with the Tesco retail chain, along with expanses related to its greeting card business, both in the U.K. SG&A increased to 18.7% of revenue from the prior year's 16%.

Meanwhile, profit margins were squeezed to 15.2% of revenue compared with the prior year's 17.8% due to a change in product mix from the Crave Entertainment acquisition in late 2005. That company specializes in videogame distribution, which generally earn a lower gross profit margin than music.

The company said music revenues declined $151.9 million to $947.6 million due to the continued weakness in the music industry and to a reduction in CD inventory levels in stores.

In a statement, company chairman Steve Strome said, performance in fiscal 2007 was unacceptable. "To combat the weak performance, the company has implemented several initiatives to diversify its customer base and products, reduce costs and improve performance."

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