Industry trends and chain initiatives which resulted in strong sales of digital and flat-panel televisions, portable DVD players, digital satellite systems, digital imaging products and portable digital audio helped move Circuit City Stores into the black during the retailer's fiscal third quarter.
Circuit City reported earnings of $1.4 million for the three months, ended Nov. 30, compared with a loss of $17.8 million in the year-ago period. However, the retailer's loss from continuing operations for the third quarter was $24.1 million, compared with a loss of $26.1 million in the same quarter in 2002.
Sales for the quarter, as already reported, edged downward 1 percent, to $2.41 billion, compared with $2.42 billion in the same quarter in 2002. Comp-store sales also were off 1 percent (see TWICE, p. 1, Dec. 8).
The retailer pointed to consumer reaction to new store designs and merchandise displays for maintaining third quarter sales, as well as a strong advertising program that it said is bringing shoppers back into the stores. "We generated a 4 percent comparable store sales increase in November, on top of comparable store sales growth in each of the two previous Novembers," said chairman/CEO Alan McCollough.
Circuit City recorded a 22.2 percent profit margin in its third quarter, down from 22.6 percent year on year. This drop primarily reflects the reduction in extended warranty sales, which carry above-average gross profit margin. Extended warranty revenue for the three months was 3.1 percent of sales, down from 3.7 percent in the same period last year.
The chain said it blamed the retail environment — where lower-priced product generated fewer warranty sales — and chain management, for the decrease in warranty sales. "We brought in 12,000 people [in the November selling period], and we could have done a better job preparing them in relation to warranties," McCollough said in an analyst conference call.
However, Circuit City did benefit from lower expenses in the third quarter, coming in at 24 percent of sales, compared with 24.5 percent in the third quarter a year earlier. Total expenses declined $15.4 million, or 3 percent, compared with year-ago figures. The largest contributor to the decline was a $10.2 million drop, or 2 percent, attributed to in-store expenses, driven by a reduction in store payroll.
Circuit City, which completed the sale of its bankcard operation in mid-November, said the deal will result in an after-tax loss of about $82 million. The retailer, to reflect sale proceeds, recorded a reduction of $19.4 million in the expected after-tax loss for the third quarter.
For the third quarter, after-tax earnings from the discontinued bankcard operation totaled $24 million, compared with after-tax earnings of $4.8 million year over year. For both the three-month and nine-month periods, current and historical results reflect the company's bankcard business as a discontinued operation.
For the nine months, Circuit City posted a $166.7 million loss, compared with a $30.7 million gain in the year-ago period.