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Circuit City U.S. Store Sales Rise 12.7%

Richmond, Va. — An effective holiday selling-season plan that resulted in record Circuit City Stores sales last December carried over into January and February, said the retailer, with the sustained strong pace leading to a 12.7 percent domestic stores sales increase in the company’s fiscal fourth quarter.

Sales rose to $3.7 billion in the three months, ended Feb. 28, up from $3.3 billion the previous year. Domestic store comps jumped 12 percent.

Gross profit margin in Circuit City’s domestic segment rose about 0.5 percent in the first quarter, due primarily to reduced markdowns, compared with the prior year, as the chain benefited from initiatives to improve inventory management, forecasting and product transition management. The improvements were partially offset by higher promotional financing costs. Net earnings from continuing operations for the domestic segment in the fourth quarter about doubled to $140.8 million, up from $73.3 million in the year-ago three months.

Fourth-quarter expenses for the domestic segment were about flat, increasing to $669.4 million, from $665.2 million in the same period the previous year.

Circuit City’s largest product category, video, increased its percentage of total sales to 45 percent in domestic stores in the fourth quarter, up from 43 percent the previous year. The video category produced a double-digit comp-store sales increase in the fourth quarter. Total 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 DVD players.

In the retailer’s domestic store information technology category, percent of sales in the fourth quarter dropped to 25 percent, from a year-earlier 26 percent. In this category, Circuit City produced a single-digit comp-store sales increase in the fourth quarter, driven by a double-digit comp-store sales rise in notebook computers.

The audio category share of sales in the fourth quarter climbed to 17 percent from 16 percent, with domestic stores producing a double-digit comp-store sales increase for the three months. This primarily reflected double-digit comp-store sales growth in portable digital audio products. Double-digit comp-store sales growth in mobile audio products reflects growth in navigation and digital satellite radio products. Comp-store sales growth in portable and mobile audio products was partially offset by a low single-digit comp-store sales decline in home audio products.

In the entertainment category, where share of sales slipped to 13 percent in the quarter from a year-ago 15 percent, domestic stores produced a single-digit comp-store sales decrease in the three months, reflecting a double-digit comp-store sales decrease in music software and a single-digit comp-store sales decrease in video software. This was partially offset by a high single-digit comp-store sales increase in gaming products.

International sales in the fourth quarter jumped 13.5 percent, hitting $196.8 million, up from a year-ago $173.5 million. Net earnings from continuing operations for international dropped to $5.8 million in the three months, down from $10.5 million the previous year.

“For the fourth quarter, we continued to see strong sales growth and also delivered a year-over-year increase in gross profit margin as we managed our supply chain more effectively,” said Phil Schoonover, president/CEO.

Fourth-quarter consolidated sales jumped 12.8 percent, reaching $3.9 billion, up from a year-ago $3.5 billion. Comp-store sales increased 11.6 percent. Sales growth was led by a triple-digit comp-store sales increase for advanced technology TVs. At the same time, Web-related sales grew 64 percent year-on-year.

Consolidated net earnings climbed 65 percent, to $141.1 million in the quarter, compared with $85.4 million the previous year, as the retailer enjoyed strong sales of flat-panel TVs and fewer price cuts. Gross profit margin improved by about 0.25 percent, due primarily to fewer markdowns as the retailer improved its supply-chain management. Expenses declined about two percentage points in the quarter, due primarily to lower store-closings expenses in the domestic segment and leverage on higher sales levels, which were partially offset by higher advertising costs.

For the 12 months, consolidated sales increased 10.8 percent, reaching $11.6 billion, up from $10.5 billion year-on-year. Comp-store sales rose 8.2 percent. Net earnings more than doubled, to $139.5 million, up from $61.7 million a year earlier. The retailer enjoyed decreasing expenses, while gross profit margin slipped only a small fraction of one point.

“In fiscal 2006, we completed the first stage of our work,” continued Schoonover, “which was focused on upgrading talent and processes, laying the foundation for systems improvements and learning to lead and manage differently.

“As we move into fiscal 2007, we look forward to moving on to the next level of work. We expect to see continued sales momentum, particularly in the first half of the year, and benefits to gross margin from the merchandising and supply-chain work we completed last year.

“The next level of work will require significant investments to strengthen our competitive position and to deliver continued revenue and margin improvements over the long term,” said Schoonover.