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Business Ethics

Fiscal Responsibility
Moral Correctness
Living With Integrity
History

Acquired Bryn Acquired HiFi Completed IPO,


Mawr Stereo, Buys, 10 stores raised $46
13 stores $28 $95 million, million
million, Mid- Southeast
Atlantic

1996 1997 1998

Built 2 new Built 4 new Built 5 new


stores, 1 stores, 1 stores, 2
relocation relocation relocations

Annual Revenue $81 million Annual Revenue $132 million Annual Revenue $232 million
History

Acquired Home Acquired United Acquired Big Acquired Sound


Entertainment, Audio, 7 stores, Screen City, 4 Ad vice, 32 stores
7 stores, $25 $49 million, stores $16 million, $200 million,
million, Texas Chicago, IL San Diego, CA Florida

Acquired DOW Acquired Douglas Acquired Audio


Stereo/Video, 9 TV, 4 stores, $27 Video Systems, 3
stores, $38 million, Chicago, stores $15 million,
million, San Diego IL Charlotte, NC

1999 2000 2001

Built 5 new Built 10 new Built 14 new


stores, 3 stores, 1 stores, 1
relocations relocation relocation

Annual Revenue $283 million Annual Revenue $404 million Annual Revenue $540 million
Five Year Revenue Growth

Fiscal Year 5-Yr


2003 2002 2001 2000 1999 1998 CAGR

BBY 6.9% 27.9% 22.7% 24.1% 20.7% 7.5% 21.4%

CC -24.1% -0.7% 3.2% 16.9% 22.4% 16.7% 3.2%

ULTE 21.4% 19.8% 25.8% 17.0% 10.3% 17.2% 17.7%

GGUY -8.5% -6.2% 2.8% -7.1% -1.4% 4.3% -5.1%

TWTR -1.8% 47.4% 35.1% 43.1% 22.1% 75.1% 35.6%


(estimate)
Income from Operations Growth

2003 2002 2001 2000 1999 1998 1997

BBY 10.2% 55.1% 12.1% 53.6% 111.4% 315.0% -66.7%

CC -98.5% 27.9% -49.3% 49.7% 61.7% -8.6% -20.0%

ULTE -47.4% -18.1% 53.7% 110.6% 154.3% -17.2% -45.9%

GGUY 114.5% -1384.7% 90.4% 65.5% -176.5% 31.2% -219.1%

TWTR -100%+ 11.3% 7.9% 69.0% 26.3% 487.2% 5.1%


(es timate)

TWTR 2002 number is before write-off of goodwill


Historical Fiscal Year Comps

• 1998 +13.5%
• 1999 + 5.0%
• 2000 +12.5%
• 2001 + .6%
• 2002 - 3.2%
• 2003 - 8.0% to -12.0% estimate
Differentiated Business Model

Tweeter Ultimate Circuit City Best Buy

Gross Margin 36% 31% 22% 20%

Product Mix Audio Audio Audio Audio


Video Video Video Video
No Computers Computers Computers Computers
Software Software Software
Office Office Office
Equipment Equipment Equipment
Compact Discs Compact Discs
Appliances

Store 10,000 SF 34,000 SF 34,000 SF 45,000 SF


Prototype

Total Stores 177 58 626 711


Differentiated Box

• 10,000 square feet


• Store Contribution goal of 12%
• Profitable at $3.5 Million Volume
• Store Contribution as high as 16% in
larger stores
• New Store investment of $1.1 million
creates $12 million in sales during the
first three years
Stores Opened in Fiscal 2003

12 Stores
in 9 states
Store Count – 9/30/03

177 Stores
1
4 16
2
15 4 7 1
16 6 2
4
4
2 3
14 4
5 3 14
8
9 33
21 States
EDCP & Automatic Price Protection

• Eliminate price from sales


conversation
• 2x per week local market
“shops”
• Backed by Automatic
Price Protection
y Since 1993
y Revolutionary price
guarantee
y Unique to industry
New Marketing began Memorial Day Weekend

• Print insert strategy tested in April and


May
• We believe this is a better vehicle to talk
about value propositions to drive traffic
• Early indications are positive, but we
need a few months of data
Sales Team Education

23%

Professional Selling Skills


Company Culture
54%
Product Info
23%

Higher average ticket


Salesperson Customer Higher Margin
Knowledge
+ Education
= Sales of new technology
Low turnover
Current Points of Focus
Current Focus

• Cut expenses to run in current business


conditions; “hunker down”

• Eliminate store openings; cut Capex


budget; conserve Cash
Current Focus

• Cash Conversion Cycle


• Focus on ROE
• Focus on Profitability
• People
Current Focus

• One Company One Way


• Custom Strategy
• Flat Panel
In Home Installation
In Home Installation

• A differentiation strategy
• A service strategy for people who love music,
movies and sports – home entertainment -
and want it all at the touch of a button.
• A margin strategy
• An average ticket strategy
• A convergence strategy
The Tweeter Customer
Our Customer

• The more affluent customer = our customer


• The early adopter = our customer
• The technology curious = our customer
• A younger car stereo, music loving,
technology competent = our customer

• Our sales force simplifies the technology


and explains the benefits of ownership to
these customers
Sales Team Education

23%

Professional Selling Skills


Company Culture
54%
Product Info
23%

Higher average ticket


Salesperson Customer Higher Margin
Knowledge
+ Education
= Sales of new technology
Low turnover
Profit Differentiation

• Do not chase “share”, except in new


technologies
• Gross Margin Focused
– Audio focused (in spite of TV growth)
– Loud Speaker dominance
– New Technologies yield higher GM’s early in cycle
– Consultative sales approach
• High Average Ticket
– Higher price points
– In home installation to be a driver
Total Revenues

$800

$700

$600 CAGR = 28%

$500
Millions

$400 796.1 781.6

(estimate)
$300 540.1

$200 399.9
279.5
228.9
$100

$0
1998 1999 2000 2001 2002 2003

Fiscal Year Ended


September 30,
Gross Margin
45%

40%

35%
Millions

30%

25%
35.2% 35.4% 35.9% 36.6% 36.0% 35.3%
35.6%
20%

15%

10%
1997 1998 1999 2000 2001 2002 2003 to
date
Fiscal Year Ended
September 30,
Operating Income

$35

$30

$25
Millions

$20

$15 30.1
27.8
25.7
$10
15.4
12.1
$5

$0
1998 1999 2000 2001 2002 2003 est
Fiscal Year Ended
September 30,
Operating Margin
7%

6%

5%
Millions

4%
6.4%
3%
5.5%
5.1% 5.1%
2% 3.7%

1%

0%
1998 1999 2000 2001 2002 2003 est
Fiscal Year Ended
September 30,
Current Conditions – Sales

• The June quarter finished down 10% comp,


excluding Florida and Arizona, comp sales
were down 11% in April, down 9% in May,
and down 4% in June
• For the September quarter we are up
against a negative 1.4%
• We expect a neutral sales environment for
the September quarter.
Some Good News …

• Margins remain relatively stable


• Up against weaker comps next 4
quarters
• Digital is the “buzz” and we’re a leader
• New products lined up to complement/
augment HDTV
• Flat Panel – Plasma/LCD – holy cow!
Flat Panel TV is Exploding
Last 9 Quarters
16
14
12
10
8 % of Sales
6
4
Jun 01

2
0
New Flat Panel Display Wall
So what does all this mean?

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