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Divx Costs Put Circuit City In Red

Circuit City reported that its consumer electronics/appliance retail stores posted record fiscal first-quarter sales and earnings from operations and that its CarMax automobile sales operation enjoyed its first profitable quarter.

But all that good news was more than overshadowed by costs related to ending involvement with the Divx DVD format, leaving the retailing business with a massive net loss for the period.

For the three months to May 31, Circuit’s retail operation had a 65% jump in earnings from continuing operations to $39.3 million, and that was lifted to $41.4 million by a contribution of $2.09 million, representing its stake in the profit of CarMax. But it ended the quarter with a net loss of $88.8 million, against year-earlier net of $13.3 million, after absorbing $130.2 million in Divx termination charges and its operating loss.

Sales for the quarter of $2.2 billion were up 14.6%, and same-store sales rose 9%.

Overall, Wall Street considered the Divx termination and the CarMax turnaround to be good news, and Circuit’s retailing tracking stock, Circuit City Group, jumped better than 10% on June 16, to set a new high for the year.

During the quarter Circuit opened nine new stores, including its first in Biloxi, Miss., Cheyenne, Wyo., Clarksburg, W.Va., Johnstown, Pa., Terre Haute, I.N., and Wheeling, Ill. It ended the period with 594 retail stores.

Separately, it was announced that the Circuit City Group stock will be split 2:1, with the payout due July 15 to holders as of June 30.

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