Lost $5.9 million in the first quarter.

The Handleman Co posted a deeper loss in the first quarter of this year compared to last, with plummeting music sales cited as the key reason for the weak performance.

Overall, the Troy, Mich.-based wholesaler posted $5.9 million loss, or 30 cents per diluted share, in its first fiscal quarter this year, versus the $3.6 million, or 17 cents per diluted share in the corresponding period of last year. Revenue held steady during the two time frames at $240.4 million.

But music sales suffered a deep drop in music sales, down $34.5 million or 15.7%. But that was mostly offset by $30.8 million in video game revenues picked up from Crave Entertainment Group, acquired in the third quarter of last year.

In a statement Handleman chairman and CEO Steve Strome attributed the decline in music sales to the lack of hit albums and noted the company’s U.S. music sales were down 10% on a unit basis, 13% in Canada and 8% in the U.K.

Also contributing to the company’s problems, gross profit declined to 14.8% of revenues as compared to 16.9% in the prior corresponding period, while selling, general, and administrative expenses increased to 23.4%, up from 19.7% in the earlier period.

The increase in SG&A expenses was attributed to costs associated with the Crave acquisition. Affter those one-time costs, the consolidation of the Crave warehousing into Handleman’s distribution facilities and other rationalizations are expected to generate $20 million in annual saviings.

In order to improve gross margin, the company said it would work to reduce product returns and more efficiently manage inventory.

While the first quarter produced weak results, the company said it expected a stronger performance in the current quarter and the holiday selling season, thanks to a more robust music release schedule and the introduction of two new console video game platforms, Sony’s PlayStation 3 and Nintendo’s Wii, due out in November.

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