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Strong Retail Profits Posted By Circuit City

Circuit City posted strong earnings growth from continuing operations at its consumer electronics and appliance retailing division for its fiscal second-quarter and first-half periods, but still had a loss for the half after absorbing costs covering the shutting of its Divx DVD venture.

For the quarter to August 31, Circuit’s retail business had a net of $73.7 million, up 129% from the same period last year when a net Divx charge of $11.6 million was incurred. Excluding that, earnings were up 68.4% as sales rose 14.3% to $2.42 billion.

For the half, the chain posted a $15.2 million loss, against year-earlier net of $45.4 million. Excluding Divx-related losses of $130.2 million this year and $19.7 million in first-half 1998, earnings jumped 76.6% to $115.1 million, and sales, at $4.63 billion, were up 14.5%. Same-store sales were up 10% for the quarter and 9% for the full period.

The results include earnings of $2.46 million for the quarter and $4.55 million for the half from the profit shown by Circuit’s CarMax Group. In those periods last year CarMax trimmed retail earnings by $2.28 million and $4.76 million.

“Throughout the second quarter, we continued to see strong consumer demand across virtually all our major product categories,” said chairman Richard Sharp. “The consumer’s interest in personal computers; new technologies, including DirecTv, DVD and wireless communications; and better-featured products such as big-screen televisions remain especially high.”

Sharp said that in addition to strong demand, the sales growth reflects the opening of 14 new stores through the first half of this year, including five in the quarter, which raised its outlet count to 599. The earnings gain, he said, was aided by a margin gain stemming from a better sales mix, improved inventory management, and “a competitive pricing and promotion environment.”

Additionally, Sharp stated, “The comparable-store sales growth, which exceeded expectations, was a primary contributor” to a reduction in Circuit’s expense-to-sales ratio.

Looking ahead, Sharp said that “given the strong comparable-store sales growth in last year’s second half, we anticipate more moderate sales increases in the third and fourth quarters. Nevertheless, we expect full-year earnings growth for the Circuit City business of at least 30%.”