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Circuit City's Q1 Sales, Earnings Stall

6/20/2007 08:14:00 AM Eastern

UPDATE! Richmond, Va. — Major structural changes and capital expenditures at Circuit City, compounded by a soft industry cycle, put a crimp in the company’s sales and earnings during its fiscal first quarter.

The No. 2 CE specialty chain reported a net loss of $54.8 million for the three months, ended May 31, while U.S. net sales declined 4.4 percent to $2.4 billion and same-store sales slid 6 percent against tough year-ago comparisons.

Circuit City also announced plans to narrow its brand assortment in TV, and named Ron Cuthbertson, formerly senior VP of supply chain and inventory management, as president of InterTAN, the Canadian subsidiary it is trying to divest.

“We made significant and substantial changes to improve Circuit City and position the company to compete while facing economic uncertainty in the near term and new realities in the consumer electronics marketplace over the longer term,” said Phil Schoonover, the retailer’s president/CEO.

Schoonover said that with the restructuring now completed, the company can turn its attention to implementing in-store improvements over the summer, including new merchandising and marketing systems, new store operating procedures, and a new point-of-sale system. Circuit City plans to have the processes in place in advance of the back-to-school and holiday selling seasons.

“We wanted to make the structural changes to our business during the first quarter and free our associates from unnecessary work so that in the second quarter we can build towards executing crisply during the important holiday selling season,” Schoonover said. “By simplifying the business and focusing on execution, we will better serve customers with an improved shopping experience in the second half of the fiscal year that should translate to improvements in revenue and margin per transaction in our key product categories.”

Those categories, and their comp-store sales performance during the quarter, include:

Video, down by double digits, reflecting a double-digit decline in total TV. High single-digit comp gains in flat panel, largely attributable to LCD, were offset by “a significant” decrease in projection and tube TV. Digital imaging and accessories decreased by single digits, and camcorders and DVD hardware declined by double digits;

IT, up by single digits, reflecting double digit gains in notebook computers and flat comps for desktop models;

Audio, down by double-digits, reflecting double-digit declines in portable digital audio, mobile, home audio and digital satellite radio products, and “a significant” double-digit increase in navigation products; and

Entertainment, up by single digits, reflecting “strong” double-digit gains in PC software and video gaming, which were offset by low-double-digit declines in video software and “strong” double digit declines in music.

Also, sales of extended warranties fell 21 percent to $73.7 million while services revenues increased 70 percent to $64.4 million. Going forward, mobile installations will fall under the purview of Firedog, the company’s 10-month-old services brand.

The retailer added that direct channel sales in the United States, including online and phone-order sales, grew 21 percent during the quarter, on top of an 85 percent increase last year.

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