Loss Widens at Gateway

Rising costs keep the company struggling.
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Gateway's

(GTW)

first-quarter loss more than doubled, despite a 28% jump in sales, the computer maker reported on Thursday.

Weighing on the company's results: falling gross margins and rising operating costs.

Investors sold the stock on the news. In recent after-hours trading, Gateway shares were off 14 cents, or 6%, to $2.22.

The company lost $12.3 million, or 3 cents a share, on $1.08 billion in sales in the quarter. In contrast, the company lost $5.2 million, or a penny a share, on sales of $837.8 million a year earlier.

How the company fared vs. the Street's expectations was not immediately clear from the report. Analysts surveyed by Thomson First Call were expecting the company to earn 2 cents a share on sales of $942.2 million. But the Street's earnings forecast excluded options costs and it wasn't clear whether it included a $14 million litigation charge the company took in the quarter.

The company had not forecast results for the just-completed period.

Similarly, Gateway did not give guidance for the second quarter. The Street is expecting Gateway to earn 3 cents a share in the current period, excluding options expenses, on sales of $973.2 million.

In the first quarter, Gateway's gross margin narrowed to 6.2% of sales from 9.6% a year ago. Gross margin is the difference between what a company charges customers for its goods and services and its direct costs of producing them. Gateway blamed the sharp drop on increased sales in its retail business, which has relatively narrow margins, and falling margins on its professional products.

As its margins narrowed, Gateway's operating costs jumped in the quarter. Such costs, which include marketing and administrative expenses, rose 17% to $103 million from the year-ago quarter. Included in that amount was the litigation charge.

Shares of Gateway closed regular trading on Thursday up 12 cents, or about 5%, to $2.36.