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Circuit City Sales Rise 4% in Fiscal Q2

Richmond, Va. — Circuit City executives cited new technology as the driving factor behind the company’s 4 percent rise in sales in its second quarter.

Total sales for the Circuit City Group rose 4 percent in the second fiscal quarter ended Aug. 31, reaching $2.51 billion, compared to $2.42 billion in the same quarter in 1999. For the six months, total sales in the Circuit City Group climbed 7 percent to $4.96 billion, compared to $4.63 billion in the same six months last year.

“Sales growth in our consumer electronics business continues to be led by new technologies and better-featured products such as big-screen TVs, digital cameras, DVD players, DVD software and wireless communications,” said W. Alan McCollough, president/CEO of Circuit City Stores Inc.

Earnings from continuing operations for the Circuit City Group include the total sales and earnings from the company’s Circuit City store business and the Group’s retained interest in the equity of the CarMax Group. Including the Inter-Group interest in CarMax, earnings from continuing operations for the Circuit City Group were $55.3 million, down about 25 percent from the $73.7 million in the same quarter last year.

Excluding the interest in CarMax, earnings from continuing operations for the Circuit City Group were $43.2 million, down about 40 percent from the $71.2 million recorded in the same period in 1999.

Gross profit margin at Circuit City stores dropped to 23.3 percent for the second quarter, compared to 25 percent in the same three months last year. If the appliance category had been eliminated, however, gross profit margin for the second quarter would have been 26.1 percent, up from 25.8 percent in the year-ago three months.

“The weak sales and competitive pricing in the appliance category early in the quarter, followed by a $7 million impact from additional appliance markdowns associated with our exit from that business later in the quarter, significantly reduced gross profit margin,” said McCollough. “The gross margin for the major appliance category, excluding the $28.3 million in one-time exit costs, was 13.3 percent in this year’s second quarter, compared to 20.9 percent in the same period last year,” he said.

Circuit City reported an expense ratio of 20.5 percent for the second quarter, 40 basis points above the same period in 1999. “This includes $8.3 million in remodeling costs for the Florida stores, and $1.7 million of one-time appliance exit costs,” said McCollough. “Excluding these costs, the expense ratio would have been even with last year’s ratio of 20.1 percent. This strong expense management was achieved despite a lack of compatible store sales growth caused by the significant weakness in the appliance business.”

Circuit City said excluding the Florida remodeling costs, merchandise markdown costs and one-time costs of exiting the appliance business, pretax margin was 4.6 percent, 10 basis points below the second quarter last year. Including all costs, this year’s pretax profit margin was 2.8 percent, according to the retailer.

Circuit City said its exit from the appliance business continues to proceed as planned. The chain has eliminated the category from about 225 stores and completed interim remodels of almost 170 stores, adding the expanded selections of computer software, peripherals, accessories, video games, 33 mm. cameras and portable audio products.

“During August, we opened the first store in our new consumer electronics and home office-only design,” McCollough said. “Consumer reaction has been highly positive, and we look forward to completion of our remodels in central and south Florida, and the grand opening of 17 new stores with this design before the holidays.