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Schoonover: 1080p Proved Problematic; Chain To Cull TV Brands

6/20/2007 02:42:00 PM Eastern

Richmond, Va. — Circuit City ascribed weak first-quarter video sales to an over-emphasis on 1080p TV, and said it will reduce its flat-panel brand assortment as part of its fix for the category.

“We really emphasized [1080p], maybe to our detriment,” said president/CEO Phil Schoonover during an investor conference call this morning.

Although the company “needs to be positioned at the high end given the competition at the low end,” he acknowledged that “720p may be good enough” for many consumers, given the compelling, under-$900 price points on some 42W-inch models.

Dave Matthews, merchandising, services and marketing executive VP, also cited weakness in plasma, rear-projection and tube technologies vs. triple-digit comp gains in large-screen LCDs, and pointed to an “increasing headwind” in the overall marketplace, as reflected in the troubles at Tweeter and CompUSA.

To address its TV woes, Circuit City will rationalize its brand assortment to “simplify the selection,” Matthews said, and will add more small-screen LCDs and promotionally priced flat panels to the mix. The company is also collaborating more closely with vendors, and is employing new markdown management systems and a multifunction team approach to better manage that business.

Moreover, Circuit City will no longer regard TV as the centerpiece of its product strategy. Instead, the category will become another element in a larger home entertainment focus that presents customers with complete “baskets” of products and services.

Elsewhere, Danny Clark, multichannel sales executive VP, attributed the quarter’s sharp decline in extended warranty sales to falling TV price points, and to in-store disruptions caused by layoffs and new job responsibilities and procedures. In response, the company is “rationalizing” extended service pricing, taking out costs, and re-examining the “value proposition” of the plans. Clark predicted that attachment rates would improve as associates adopt newly simplified sales procedures and new operational processes allow them to spend more time with customers by performing housekeeping chores before and after store hours.

Clark added that the chain will open or relocate 60 to 65 stores this year and between 75 and 100 next year to make up for lost time.

Goldman Sachs analyst Robert Higginbotham said Circuit City’s

first quarter results

were “predictably problematic” given the tough CE environment, but took the company to task for its aggressive store expansion plans. “Whereas systems investments are arguably essential, store expansion is not, and we see aggressive spending on real estate, as the firm confronts cyclical and financial challenges, as unnecessary,” he observed in a research note. “Correcting this would be the single biggest move Circuit City’s management could make to begin to remedy its recent underperformance.”