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Circuit City Selling Bank Card Biz

8/18/2003 02:00:00 AM Eastern

Taking a cue from Sears, Circuit City said last week that it is placing the bank card portion of its finance operation on the auction block, and hopes to reap $190 million in cash from the sale.

Chairman/CEO Alan McCollough said the ailing bank card business had been profitable during up economic cycles, but "is not key to Circuit City's long-term growth plans." Its sale, he said, would help the company avoid large cyclical profit swings, free up cash, and allow the chain to focus on the "revitalization" of its core retail operations.

The bank card unit accounts for about half of the company's $3 billion in finance receivables, with the balance derived from its private label and co-branded Visa credit cards. The finance operation lost more than $14 million in the last two quarters, compared to a $54 million gain during the year-ago period.

Last month Sears sold its troubled credit card operation (to Citigroup for $3.4 billion), and analysts had urged Circuit City to follow suit. The No. 2 CE chain has hired Bank of America to assist with the sale of the business, which it will classify as a discontinued operation. The retailer said it would likely incur an after-tax charge of as much as $200 million to exit the business, which it will take largely in the current quarter, ending Aug. 31.

McCollough also noted that declines in store traffic and average ticket have contributed to an 8 percent drop in same-store sales during the first two months of the quarter, despite continued consumer demand for digital TVs and digital imaging products, and strong back-to-school sales of PCs and printers.

He added that the company is on schedule to complete its goal of 222 store refixturings by the end of August.