Circuit City swings to loss in 2Q

Electronics retailer Circuit City Stores Inc. said Thursday it lost $62.8 million in its second fiscal quarter, on lower overall sales and continued restructuring activity.

Its shares skidded more than 17 percent by midafternoon.

For the quarter ended Aug. 31, the nation's No. 2 consumer-electronics chain behind Best Buy Co. Inc., lost 38 cents per share, compared to a profit of $10 million, or 6 cents a share, a year ago.

Richmond-based Circuit City's revenue was $2.64 billion, down 6 percent from $2.82 billion in the year-ago period. Sales at stores open at least a year, known as same-store sales, slipped nearly 8 percent. In the year-ago period, same-store sales rose 8 percent.

Analysts surveyed by Thomson Financial expected a per-share loss of 12 cents on revenue of $2.78 billion.

Circuit City shares fell $1.90, or 18 percent, to $8.67 Thursday after sinking to a new 52-week low of $8.46 earlier in the day.

"While we are not satisfied with the financial performance for the quarter, we made solid progress on our multiyear turnaround plan to increase productivity and to improve the customer experience," Philip J. Schoonover, Circuit City's chief executive, said in a news release.

In a conference call with analysts, Schoonover said that Circuit City saw a "major disruption" in the second quarter as it adopted new retail operating procedures in more than 650 stores. It also revised its management structure as well as modified how it evaluates employee performance. The company also opened nine new stores and relocated four others during the period as part of its ongoing turnaround strategy.

"Most of the change is now behind us" as Circuit City looks to the all-important holiday selling season, Schoonover said.

Schoonover, however, didn't rule out a private acquisition of Circuit City, citing overtures by Mexican financier Carlos Slim Helu in 2003 and Highfields Capital Management in 2005. Both preceded the company's current reorganization efforts.

"In both cases, the board voted the offers were not in line with optimizing shareholder value," he told analysts.

Circuit City has not received any subsequent bids, company spokesman Bill Cimino said, but "it's the board's responsibility to look at any serious offer."

Company officials said gross profit margin fell significantly, driven largely by lower sales of extended warranties and lower margins on televisions and PC hardware. Expenses increased on lower sales, store-opening costs and spending on information technology and other areas, and were partly offset by reduced labor costs.

Circuit City remains on track to cut $150 million in costs in fiscal 2008, and $200 million in 2009, Schoonover said.

In the second quarter, Circuit City's video sales fell by double-digits, with double-digit sales growth in flat-screen televisions more than offset by significant sales decreases in tube and projection televisions. Sales of camcorders and DVD hardware fell by double digits.

Sales of information-technology products were up slightly in the second quarter, as sales of notebook computers grew and sales of desktop computers declined slightly.

Circuit City's audio sales grew by double digits in the period, driven by a large increase in purchases of navigation products. Portable digital audio, home audio and digital satellite radio items saw a significant sales decrease.

Sales of extended warranties fell 38 percent in the quarter, but revenue from Firedog, the company's PC services and home-installation business, increased 22 percent, Circuit City said. Internet- and call center-originated sales grew 20 percent.

The results came two days after larger rival Best Buy reported an 8.7 percent profit increase on revenue of $8.75 billion, beating analysts' expectations. The Richfield, Minn., retailer also offered a bullish forecast for the rest of the fiscal year.

Circuit City expects to see improvement but continued weakness in the third quarter, but officials declined to give more specific guidance. The retailer expects to swing to a fourth-quarter profit, and record a net loss for the full fiscal year.

The company said it planned to open 60 to 65 new and relocated U.S. Superstores in fiscal 2008; two-thirds of the openings will be 20,000-square-foot stores, a format that has outperformed the company's other store models.

Bruce H. Besanko, the company's chief financial officer, told analysts that the company will re-evaluate its real estate strategy in the third quarter, and didn't rule out pulling back on the rollout of new stores until earnings stabilize.

"There's really no options that aren't going to be considered," he said.

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On the Net:

Circuit City Stores Inc.: http://www.circuitcity.com