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Gateway's Loss Nearly Triples as Sales Drop 20%

More than half of the red ink is due to a charge to remodel 185 stores and build three distribution centers. Shares plunge.

October 24, 2003|Alex Pham | Times Staff Writer

Continuing its trail of red ink, Gateway Inc. posted a wider third-quarter loss because of a nearly 20% plunge in revenue, sending the company's shares sliding in after-hours trading.

The Poway, Calif.-based computer and consumer electronics merchant recorded $883 million in sales in the three months ended Sept. 30, down from $1.1 billion a year earlier.

It had a net loss of $139 million, or 43 cents a share, compared with a net loss of $50 million, or 15 cents, a year earlier.

The third-quarter results included a $73-million charge to remodel 185 stores and build three distribution centers that are expected to save Gateway $130 million in annual expenses.

Without the charge, Gateway's loss would have been $66 million, or 20 cents a share. Analysts surveyed by Thomson First Call had expected a loss of 19 cents a share.

Gateway shares lost 5 cents to $6.10 in regular trading on the New York Stock Exchange but fell as low as $5.03 in after-hours trading after the announcement.

Losses are expected to continue next quarter, with as much as $60 million in restructuring charges expected. The company estimated sales of $925 million to $975 million in the holiday quarter and a per-share loss of 9 cents to 15 cents.

To make up for its eroding share of the computer market, Gateway has embarked on a two-prong plan to cut costs and sell higher-margin consumer electronics goods such as digital music players, plasma TV sets and digital cameras. It also closed stores and revamped its distribution and manufacturing.

"We're now a completely different and stronger Gateway," Chief Executive Ted Waitt said.

With $1.1 billion in cash, Gateway can afford its makeover, analysts said.

"They still have a healthy balance sheet," said Joseph Beaulieu, a Morningstar Inc. analyst in Chicago.

"The clock is ticking, but there's still a lot of time left on that clock."

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