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Circuit City Domestic Stores Sales Grow

Richmond, Va. — Although fiscal first-quarter sales in the domestic segment at Circuit City Stores increased 2.1 percent year-over-year, comp-store sales for the same three months remained flat.

Sales for the retailer’s domestic stores business climbed to $2.12 billion in the period ended May 31, up from $2.07 billion in the first quarter the prior year. Net loss from continuing operations for the segment moved up to $7.1 million in the first quarter, compared with a year-ago loss of $5.6 million.

A decrease in both wireless sales and digital video service sales for domestic stores in the first three months reduced the company’s overall first-quarter comp-store calculation, said Circuit City.

On the positive side, the chain produced a single-digit comp-store sales increase for the video category in the first quarter. Television comp-store sales increased by double digits, led by triple-digit, comp-store sales growth in flat-panel displays.

Growth in TV sales and double-digit comp-store sales growth in digital imaging were partially offset by double-digit comp-store sales declines in camcorders, DVD players and digital video service. The video category remained at a 42 percent share of domestic merchandise sales first quarter over first quarter.

In the information technology segment — which dropped to a 29 percent share of first quarter domestic merchandise sales, compared with 33 percent in 2004 — a double-digit comp-store sales slide was driven by double-digit comp-store sales decreases in PC hardware. This included double-digit comp-store sales dips in desktops, monitors and printers, and a single-digit comp-store sales decline in notebooks. Comp-store sales for PC accessories were relatively unchanged.

Circuit’s audio segment climbed to a 16 percent share of domestic merchandise sales in the first quarter, up 3 percentage points from the same three months last year. The double-digit comp-store audio sales increase was attributed to triple-digit comp-store sales growth in portable digital audio products and single-digit comp-store sales increases in mobile audio products that were partially offset by double-digit comp-store sales decreases in home audio products.

The entertainment segment enjoyed a 1 percentage point increase in share of domestic sales during the first quarter, rising to a 13 percent share, due mainly to a double-digit comp-store sales rise in game products and a single-digit increase in video software that was partially offset by a single-digit decline of music software.

“We are particularly encouraged with the sales strength of several of our key product categories, including advanced technology televisions, portable digital audio products and satellite radio,” said Alan McCollough, chairman/CEO. “This sales strength was offset by sales weakness in other product categories, including notebook and desktop computers where we experienced inventory shortages late in the quarter,” he said.

Consolidated Circuit City sales jumped 6.4 percent in the first quarter, hitting $2.23 billion, compared with a year-earlier $2.09 billion. However, the retailer still nearly tripled its net loss in the quarter, to $13.1 million, up from a loss of $5.9 million in the same three months last year. Net loss from continuing operations rose to $13.1 million in the quarter, up from a loss of $5.2 million in the same three months in 2004.

“Although we saw year-over-year improvements in total sales and gross profit margins, several actions contributed to an increase in SG&A expenses that more than offset these improvements,” continued McCollough.

Gross profit margin in the first quarter hit 25 percent, up from 23.6 percent year-on-year, due primarily to higher-than-average gross profit margin contributed by extended warranty sales, improved store merchandise margin due principally to a lower mix of PC hardware and improvements in the efficiency of the retailer’s product service and distribution operations.

However, expenses climbed to 25.8 percent of total sales in the first three months, up from 24 percent in the same period last year. This reflects the impact of inventory write-downs in the company’s international segment, associated with the brand transition in Canada that is a result of the ongoing litigation with RadioShack. The domestic segment registered higher expenses associated with consulting services and higher rents.

During the first quarter, the domestic segment relocated three stores, and about 30 to 40 new and relocated store openings are anticipated over the fiscal year, ending in February of 2006.