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Black Colors Circuit City Group's Q3

12/18/2001 11:41:00 AM Eastern

Richmond, Va. -- Circuit City is coloring its third-quarter earnings results black, following the retailer's report of a $21.1 million profit for its Circuit City Group during the three months ended Nov. 30, compared with a loss of $64.4 million in the year-ago period.

The better-than-expected increase, which includes CarMax earnings attributed to the Circuit City Group stock, was attributed to better marketing that boosted sales of wireless phones, DVDs and home entertainment goods, as well as increased expense control.

Sales in the Circuit City Group, as reported in mid-December, fell 2 percent in the fiscal third quarter, dropping to $2.28 billion from the $2.33 billion recorded in the same quarter last year. Comp-store sales dropped 4 percent in the third quarter, but excluding major appliances, the dip in comp-store sales was halved to 2 percent for the period.

Circuit City has been struggling to ramp up its business since it dropped majaps in November 2000. The retailer noted that a third-quarter improvement in its sales trend "encompassed a broad base of categories -- including the new and expanded selections added following last year's exit from the appliance business -- and provided the anticipated leverage for earnings improvement," according to Alan McCollough, president/CEO of Circuit City Stores. He also attributed an increase in store traffic to more effective marketing as well as creative events.

Gross profit margin for the Circuit City Group business climbed 130 basis points during the third quarter, reaching 24.2 percent. If not for the 90-basis-point decline attributed to majap markdowns, the gross profit margin increase would have been 220 basis points. "The improvement reflects the solid sales growth in better-featured products and new technologies, tempered by the effect of our promotional activities over the Thanksgiving holiday," said McCollough.

The Circuit City Group also improved its expense ratio by 150 basis points, down to 23.5 percent in the third quarter, excluding the impact of the majap exit. Including one-time majap exit costs in last year's third quarter, the expense ratio drop hit 320 basis points. "The decline in the ratio and in the absolute expense level reflects the benefits of our cost control and productivity initiatives, including more efficient advertising expenditures, as well as the absence of remodeling costs in this year's third quarter," said McCollough.

For the nine months, sales in the Circuit City Group hit $6.2 billion, down about 16 percent from the $7.3 billion recorded in the same nine months in 2000. Net earnings for the group in the nine months reached $38.1 million, down from $48.1 million in the year-ago period.

Gross profit margin for the Circuit City Group in the nine months climbed 120 basis points, including the impact of the retailer's exit from its majap business. The expense ratio, however, rose 200 basis points during the nine months, including costs of the majap exit.

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