One more opinion on CPU. Found this at investmentmill.com and am only printing part of what was said in the "Positive" rating:
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CompUSA is the largest retailer of computer-related products in the United States. The company has 203 stores as of September 26, 1998, and operates an extensive mail-order/Internet retailing business.
COMPUTER CITY ACQUISITION ELIMINATES PRIMARY COMPETITOR
In August 1998, CompUSA purchased Computer City from Tandy for $172 million. The acquisition was obviously intended to primarily eliminate competition, since CompUSA immediately announced that it would close 55 stores and sold seven Canadian stores to Future Shop Ltd. for $12 million. CompUSA is recording $90 million in goodwill as an estimate of excess purchase over fair value of the stores acquired, to be amortized over 20 years. This additional goodwill can also be thought of as the cost to eliminate their closest competition, which may end up as a bargain. To put it in perspective, the $4.5 million per year to be amortized works out to $0.03 per share per year.
If the $90 million goodwill and the $12 million sale (to Future Shop) is subtracted from the $172 million purchase price, it leaves $70 million that CompUSA paid for the 37 Computer City stores it acquired. Normally, CompUSA pays $1-$2 million to open a new store, plus it has to stock the store with inventory, which in this case was included in the purchase price of the Computer City stores. (CompUSA averages $3.8 million in inventory per store, as of the latest quarterly results.) In short, $70 million does not seem out of line.
BUT COMPETITION REMAINS INTENSE
The problem for CompUSA is that competition continues to increase in the computer retailing business. Best Buy and Circuit City have both added extensive computer shelf space to their retail operations, and computer retailing now accounts for about 40% of Best Buy's sales. Thus, the battle lines have been drawn, as CompUSA has better selection, but the electronic retailers have more diversity across other product lines.
In addition to the competition from other retailers, CompUSA also has intense competition from other mail-order firms and now from the Internet. Computer buyers tend to be Internet savvy, so the Internet represents a significant threat. Price scanning sites like PriceScan (www.pricescan.com) and PriceWatch (www.pricewatch.com) are set up for consumers to check product prices across a variety of retailers with just a few mouse clicks, so pricing pressure may become even greater for CompUSA.
HOW DOES COMPUSA SURVIVE?
CompUSA is fighting the intense competition in the industry by differentiating itself. CompUSA is cozying up to corporate clients in a variety of ways. First, CompUSA has added computer-training facilities that provide inexpensive training both at CompUSA stores and at customer sites. CompUSA currently has 500 classrooms nationwide that each has capacity for 12-15 people. In addition, CompUSA offers same-day delivery to large clients located near its retail stores. Product sales to corporate clients and revenues from its training facilities account for about 40% of CompUSA's total sales. The Computer City acquisition also allows CompUSA more influence over suppliers, since the company is now easily the largest computer hardware and software retailer in the United States. Its sales of computer hardware and software are almost equal to Best Buy and Circuit City combined (looking at just computer hardware and software sales). This influence could easily translate into better prices, faster delivery, and better fees for the manufacturer kiosks located throughout CompUSA's stores.
Although we believe the Internet will have a substantial impact on the way many products are sold, it is unlikely the Internet will completely eliminate retail storefronts. People are accustomed to retail shopping, and that attitude isn't likely to go away in the near future. Sure, we expect many businesses and consumers to convert their shopping habits rather quickly, but we suspect many will continue traditional retail habits. In addition, some products are not easily sold online, such as monitors, scanners, and printers. The advantage of traditional retail is that the customer can go to the store and touch the product and view samples, something that is difficult to accomplish at a web page.
CompUSA is also tackling the Internet challenge head-on, by maintaining one of the Internet's most extensive computer retailing websites. This does not mean that we expect CompUSA to dominate computer retailing on the web. We have read several review articles on CompUSA's website, and the primary complaint is that prices on the website are frequently higher than prices in the retail store. However, this is a problem that can be easily corrected and we expect this difference will be adjusted over time.
COMPUSA VALUATION
We would not classify CompUSA as a value stock, although its valuation appears to be inexpensive compared to the other electronic retailers Best Buy and Circuit City. [visit site for other data and details]
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