The Ultimate Boondoggle?What Happened to Ultimate Electronics?
Store traffic was down due to the residual effect of the IS system disaster and "shifting competitive pressures," but Ultimate claimed it was doing a better job of converting what store traffic remained into sales, due to "more focused" marketing. Workman continued to express optimism. "The $4.4 million improvement in our third quarter loss from operations indicates our turnaround initiatives are taking effect," he stated. "Our gross profit margin, comparative store sales metrics and selling, general and administrative expenses have improved each quarter since implementing our turnaround strategy. The results reflect our focused initiatives on increasing gross margin, managing inventory, improving advertising effectiveness, reducing SG&A, and enhancing the customer experience. We remain committed to our turnaround strategy and expect to see continued improvement in our business. Our actions position us well for the holiday season, and as we enter 2005."
But the cash-strapped company sank deeper into debt, and its lenders came calling. Ultimate had reported seven consecutive quarterly losses. On December 13, it requested a two-day extension to file its third-quarter Form 10-Q. Fourth-quarter sales to date were weak and Ultimate said it would likely default on loans; it sought waivers from its lenders that would never arrive. Ultimate, for the first time, expressed "substantial doubt about its ability to continue as a going concern," and said it was investigating "strategic alternatives," including possible reorganization. By December 28, Ultimate still hadn't filed a fully compliant third-quarter 10-Q, leading Nasdaq to notify Ultimate of its potential delisting for violating marketplace rules. Ultimate claimed its independent auditors still hadn't completed work on the 10-Q.
On January 10, Workman's hopeful predictions of a holiday-fueled recovery were positively dashed. Sales for November, at about $69.2 million, were down eight percent from November 2003; same-store sales were down about six percent. December looked even worse: sales, at about $85.7 million, as well as same-store sales, were down 18 percent. Ultimate said "serious liquidity problems" had "adversely affected inventory levels," and January sales results already compiled showed an "increasingly negative trend."