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Red Colors Circuit City Fiscal Q2

Richmond, Va. – Hard hit by industry-wide weakness in personal computer sales and declines in sales of analog products and older technologies – caused in part by lower average retails – second-quarter business at the Circuit City Group, excluding CarMax earnings, produced a loss of $12.5 million. This compares with earnings of $43.2 million in the year-ago three months.

Comp-store sales in the Circuit City Group, as reported, dropped 21 percent in the second quarter, with comps continuing to be affected by the retailer’s exit from the major appliance business last year. Excluding major appliances, second-quarter comp-store sales dipped 9 percent.

Total sales for the group dropped 19 percent in the three months ending August 31, as reported, hitting $2.04 billion, compared with $2.51 billion in the same quarter in 2000.

‘We remain dissatisfied in the overall sale performance of our Circuit City business, although we continue to produce strong sales growth in key product categories,’ said W. Alan McCollough, president/CEO.

‘We have experienced extremely solid comp-store sales increases in digital and advanced technologies, such as digital televisions, and in the new and expanded categories, such as digital imaging, video games, video software and personal computer software, accessories and peripherals, added in the former appliance space.’

Excluding the impact of its major appliances exit, Circuit City registered a 24.4 percent gross profit margin in the second quarter, 30 basis points below the 24.7 percent recorded in the second quarter last year. Including major appliances, last year’s second quarter gross margin was 23.3 percent.

‘The reduction in the gross profit margin in the Circuit City business, in part, reflects a brief supply constraint as we made a transition in DirecTV inventory during the quarter, as well as slower wireless communications sales early in the quarter,’ said McCollough.

‘The DirecTV supply issues have since been resolved and both of these high-margin service businesses were performing well as the [second] quarter ended. Stronger sales of products such as digital televisions and weak sales in the low-margin personal computer category had positive impacts on the gross profit margin,’ he said.

‘Although we believe we are making progress across a number of fronts, we remain conservative in our outlook for the balance of the year,’ continued McCollough. ‘While we believe that continued consumer interest in digital advances, combined with the introduction of new computing technologies and new gaming platforms, will spur sales in select categories, the uncertain economic and industry climate is likely to remain a factor in our overall performance. We currently have no new trends on which to base any changes in earning expectations.’

For the six months, total sales for the Circuit City Group decreased 21 percent, to $3.92 billion, down from $4.96 billion in the year-ago six months.

The Circuit City business produced a loss of $22.1 million, excluding CarMax earnings, compared with earnings of $89.9 million in the fiscal first half of 2000.

Gross profit margin for the six months remained at 24.5 percent. Including costs and markdowns associated with the major appliances exit, last year’s first half gross margin was 23.8 percent.

Lower comp-store sales were the primary reason the Circuit City Group increased its second-quarter expense ratio 500 basis points, from 20.4 percent to 25.4 percent. Including major appliances exit costs, the expense ratio in last year’s second three months was 20.5 percent. Other reasons for the growing second-quarter expense ratio include higher remodeling and advertising expenses.