Circuit Zapped By Weak Majap Sales

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RICHMOND, Va. -- Circuit City said a drop-off in its white goods business contributed to flat same-store sales last month.

Although the No. 2 electronics and appliance chain saw its quarterly sales grow 11 percent to $2.45 billion, and comp store sales gain 7 percent for the period, revenue was up only 3 percent in May, and comparable store sales were unchanged for the month.

The results stand in sharp contrast with arch rival Best Buy, which reported a 24-percent hike in sales and a 9.5 percent increase in same-store revenue for the quarter. Sales growth at Circuit's CE stores also trailed gains at sister division CarMax, the once ailing used car unit that enjoyed respective hikes of 29 percent and 14 percent in total and same-store sales for the quarter.

The financial markets were quick to react to yesterday's announcement, sending Circuit City shares down 25 percent, or nearly 13 points, at the close of trading, and dragging down shares of other CE chains in the process.

Circuit president and chief operating officer Alan McCollough said the chain's comparable store sales excluded 31 stores where significant remodeling began early last month, and that the shift in weekends between April and May moved about 4 percentage points from May's same-store sales to April. But he also acknowledged that sales slackened in the final weeks of the quarter, and that Circuit saw "a significant slowing in major appliance sales as the quarter progressed." Indeed, majaps dropped to 14 percent of total sales for the period, compared to 16 percent during the year-ago quarter.

Interestingly, home office products, including PCs and peripherals, proved to be the merchant's "strongest growing category," McCollough reported, rising to 31 percent of total quarterly sales from 26 percent last year. And while big screen TVs, DVD players and digital cameras also enjoyed "continued strength," Circuit's overall TV, audio and VCR/camcorder categories each declined a percentage point, to 18 percent, 14 percent and 12 percent of the total sales mix, respectively, for the quarter.

Analysts attributed the company's mixed results and softened majap sales to higher interest rates, which has cooled the housing market and, possibly, big-ticket purchases. They also point to sharp competition in the marketplace, including No. 1 CE retailer Best Buy, and an aggressively expanding Lowe's, which claims to have surpassed Circuit as the nation's No. 2 appliance chain behind Sears.

Circuit also lowered its earnings expectations for the first quarter due to a "merchandise sales mix [that] will result in lower overall gross profit margins than we initially estimated," said Richard L. Sharp, chairman/CEO of Circuit City Stores. The company expects to report complete first quarter earnings on June 16.

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Circuit City

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For previous TWICE Online coverage see...
Sears Mulling CE/Majaps Stores, 12.May.2000
April Showers Sales On CE Retailers, 9.May.2000
Circuit Lauded For Majap Move, 13.March.2000


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