Circuit City Q1 loss triples on lower same-store sales
Videogame increase dragged by decline in home theater
By Danny King -- Video Business, 6/19/2008
JUNE 19 | Circuit City’s fiscal first-quarter loss tripled as same-store sales declines in home-theater installations, video equipment and camcorders dragged down a boost in videogame products and a small increase in flat-screen TV sales.
The company, the subject of a buyout offer from Blockbuster this year, also discontinued its dividend payments and filed for a so-called “shelf registration” with U.S. regulators to allow the company to respond more quickly to acquisition bids.
The net loss for the No. 2 U.S. electronics retailer for the quarter ended May 31 widened to $164.8 million, or $1 a share, from $54.6 million, or 33¢, a year earlier, the company said this morning. Revenue fell 7.4% to $2.3 billion as less foot traffic dropped same-store sales by 11%.
Circuit City has been trying to cut losses amid both an economic downturn in the U.S. and increased competition from U.S. electronics chain-store leader Best Buy and Internet retailers such as Amazon.com. Best Buy this week said fiscal-first-quarter revenue rose 13%, though profit dropped on more sales of lower-margin videogame consoles.
“The economy’s tough,” Circuit City chief financial officer Bruce Besanko said on a conference call with analysts this morning. “It’s not helping us right now.”
The company was expected to lose $1.07 a share on $2.37 billion in sales, the average estimates of analysts in a Thomson Financial survey. Shares fell 1.7% today after Circuit City said its fiscal second-quarter loss would widen by as much as 44%.
Same-store revenue from home-theater installations plunged 16% as many of the company’s bundling promotions a year ago are no longer used because of its efforts to cut costs and boost gross margins, CEO Philip Schoonover said on the call.
Last month, Circuit City hired Goldman Sachs to explore strategic alternatives for the company, four weeks after Blockbuster said it made an unsolicited bid for Circuit City in February. Circuit City questioned whether Blockbuster had the financing for the acquisition, though allowed the company to continue its due diligence.
Circuit City today said it filed for a shelf registration, which facilitates the company’s ability to issue shares. The filing allows Circuit City “maximum flexibility” to respond to offers, said Besanko. None of the company’s executives mentioned the Blockbuster bid on today’s call.
In May, the company also reached an agreement with shareholder and former Hollywood Entertainment founder Mark Wattles, who owns 6.5% of the company and had been critical of the company’s turnaround efforts, by including three of his nominees as candidates for its board.
