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Circuit City profit jumps on high-tech TV sales

Circuit City Stores Inc. Wednesday said quarterly profit rose 65 percent, driven by strong sales of flat-panel televisions and fewer price cuts.
/ Source: The Associated Press

Circuit City Stores Inc. reported solid revenue growth and higher profits in the fourth quarter as it benefited from internal improvements and exceptionally strong sales of flat-panel televisions. Its shares rose more than 7 percent.

The Richmond-based retailer exceeded analysts’ expectations in the quarter, reporting a 65 percent increase in its earnings. Both Circuit City, the No. 2 chain of consumer electronics stores, and the larger Best Buy Co. Inc. have benefited from robust industry sales of advanced-technology TVs and MP3 players.

Chief Executive Officer Philip J. Schoonover, a former Best Buy executive who has received a fair share of credit for Circuit City’s turnaround, said the company also managed to improve its quarterly gross profit margin by better managing its supply chain.

For the fourth quarter ended Feb. 28, net income rose to $141.1 million, or 80 cents a share, up from $85.4 million, or 45 cents a share, in the year-earlier period.

Earnings from continuing operations were $146.6 million, or 84 cents a share, in the recent quarter. They exclude a $7.8 million reduction in pretax income that is tied to the company’s more conservative approach in estimating the use of a customer rewards program.

Analysts surveyed by Thomson Financial had estimated quarterly earnings of 77 cents a share.

Sales rose nearly 13 percent to $3.91 billion in the quarter from $3.47 billion in the year-ago period. Same-store sales, or sales at stores open at least a year, rose almost 12 percent, driven by a triple-digit increase in same-store sales of flat-panel TVs. The retailer also benefited from strong Web-site sales.

Schoonover said he was proud of the retailer’s “significant improvement,” and he credited store employees for executing a holiday season strategy that resulted in record December sales. The strong sales throughout the quarter also led to fewer markdowns.

For the year, Circuit City earned $139.5 million, or 77 cents a share, up from $61.7 million, or 31 cents a share, in the year-earlier period. Revenue rose about 11 percent to $11.60 billion from $10.47 billion.

Schoonover said sales in fiscal 2006 were stronger than expected. Some of that growth came from the disciplined use of promotions to lure consumers back to the retailer’s revamped and relocated stores, he said.

During a late morning conference call with analysts, Schoonover said Circuit City’s continued improvements also reflect changes in the way the company communicates key goals to its employees, who are in turn rewarded for delivering on them.

“This cultural shift sets a firm foundation for future growth,” he said.

Circuit City has been relocating stores, improving its merchandising and making other changes to regain market share lost to Best Buy, Wal-Mart Stores Inc. and other retailers.

Executives at Circuit City predict earnings-per-share in the first quarter of fiscal 2007 to be approximately break-even, following losses in previous first quarters. For fiscal 2007, the they expect total sales growth of 7 percent to 11 percent, and an increase in domestic same-store sales between 5 percent and 7 percent.

This year, analysts believe the company will benefit from next-generation gaming systems and continued strength in advanced-tech TVs.

“2006 is anticipated to be the breakout year for advanced TVs,” Lehman Brothers analyst Alan M. Rifkin wrote in a report Wednesday. “We believe the digital TV cycle has just started and that three years of solid growth should ensue, likely followed by another cycle.”

As the company continues relocating and opening stores, it will also be investing heavily in upgrading its outdated information systems.

“The next level of work will require significant investments to strengthen our competitive position and to deliver continued revenue and margin improvements over the long term,” said Schoonover.