AP News, December 19th, 2006
Consumer electronics retailer Circuit City Stores Inc. said Tuesday it swung to a loss in the third quarter as deep discounts on flat-panel televisions and computer hardware and software cut into profit margins. It also lowered its full-year sales outlook and shares fell more than 16 percent.
The nation's second biggest consumer electronics chain after Best Buy Co. Inc. reported a loss of $16 million, or 9 cents per share, in the three months ended Nov. 30. Analysts polled by Thomson Financial were looking for a profit of 5 cents per share.
A year ago, Richmond-based Circuit City earned $10.1 million, or 6 cents per share.
Sales rose about 7 percent to $3.1 billion from $2.9 billion last year, but fell slightly below Wall Street's forecast for $3.12 billion. The company had exceeded analysts' expectations for the five previous quarters.
Sales at stores open at least a year, considered a key indicator of retail strength, rose 5.1 percent.
Circuit City cut its fiscal 2007 sales forecast, citing expectations of continuing pressure on gross margins caused by heightened competition, and now expects growth of 8 percent to 9 percent instead of the 9 percent to 11 percent previously forecast. Same-store sales are expected to grow by 6 percent to 7 percent, not the 7 percent to 9 percent previously forecast.
The company had boosted its fiscal outlook after promising second-quarter earnings fueled by the flat-panel televisions and digital-imaging products and accessories.
Circuit City shares fell $3.75, or 16.4 percent, to $19.01 in morning trading on the New York Stock Exchange.
Philip J. Schoonover, the company's chief executive, called the third-quarter "volatile," pointing to the unanticipated drop in the prices of flat-panel televisions and the aggressive competition for them.
"Although flat panel television unit sales increased by strong double digits, the increase in television units and associated attachment sales did not produce the gross profit dollar results necessary to offset these price declines," Schoonover said.
Best Buy reported last week that its third-quarter earnings missed Wall Street expectations as heavy discounts on Black Friday caused it to lower prices, particularly for flat-panel televisions.
Domestically, Circuit City's Web-originated sales grew 67 percent, call center sales grew 84 percent and services revenues grew 72 percent over the previous year.
Circuit City saw a high single-digit gain in video sales during the period, led by strong growth in flat-panel televisions and other televisions. Sales of digital imaging products and accessories also increased by double digits, but the growth in the video category was partially offset by a single-digit decline in same store sales of camcorders and a double-digit decline in DVD hardware.
The company reported flat sales in the information-technology category, with a high-single-digit increase in notebook computers offset by declines in desktop computers and hardware.
In the audio category, Circuit City also reported flat same-store sales because a triple-digit increase in navigation products was negated by a high-single-digit decline in home audio products and a double-digit decline in satellite radio products. Sales of portable digital audio products were flat, while accessories grew by high-single digits.
The company produced high-single-digit same store sales in the entertainment category for the third quarter, with strong increases in video gaming products and PC gaming software. Both music software and video software sales declined.
For the first nine months of the year, Circuit City earned $423 million, or breakeven on a per share basis, versus a loss of $1.6 million, or 1 cents share, a year ago. Sales increased about 10 percent, to $8.6 billion from $7.7 billion in the year-earlier period.
