IE 11 is not supported. For an optimal experience visit our site on another browser.

Circuit City has bigger 2Q loss, withdraws outlook

Circuit City Stores Inc. withdrew its outlook for the full year and posted a wider second-quarter loss Monday as it looks toward a holiday shopping season which has even the least vulnerable retailers worried.
/ Source: The Associated Press

Circuit City Stores Inc. withdrew its outlook for the full year and posted a wider second-quarter loss Monday as it looks toward a holiday shopping season which has even the least vulnerable retailers worried.

Shares in the nation's second-largest consumer electronics retailer fell more than 20 percent and fell to its lowest point in 22 years as investors worried about Circuit City's future and analysts questioned how long vendors will keep supporting the company's turnaround efforts.

The Richmond, Va.-based consumer electronics retailer, which has seen only one profitable quarter since the second quarter of 2007, said it plans to focus on making customer service state of the art as it battles sluggish sales, poor traffic and heightened competition for customers who are already buffeted by the poor economy.

"We realize the performance of this company is unacceptable to all of our stakeholders and that it is imperative that we take the right steps to accelerate our turnaround," James A. Marcum, vice chairman and the new acting president and chief executive, said in a conference call with investors.

"The past several years have been difficult for this company. ... We must get back to the basics and, make no mistake, this is all about our customers."

Circuit City — which replaced its CEO last week — said it lost $239.2 million, or $1.45 per share, in the three months ended Aug. 31, compared with a loss of $62.8 million, or 38 cents per share, in the same quarter last year. Excluding $73 million of non-cash asset impairment charges, the loss came to $162.7 million — better than earlier forecasts for a loss from continuing operations of between $170 million and $185 million.

Sales declined 10 percent to $2.39 billion from $2.64 billion, with consolidated same-store sales falling 13.3 percent.

Analysts polled by Thomson Reuters had expected a loss of $1.04 per share and $2.53 billion in sales.

But given the headwinds Circuit City is facing — Chief Financial Officer Bruce H. Besanko cited significant declines in traffic, heightened competition and a weakened brand position — the company said it was "prudent" to withdraw its previous outlook for fiscal 2009.

Many analysts on a conference call questioned Circuit City's relationship with vendors as it continues its multiyear turnaround heading into the holiday season.

"It is clear that the vendors do view us as relevant, they do view us as having a reason for being," said Marcum, who replaced Philip J. Schoonover last week. "They are very supportive of where we are, they are actually very happy with a number of the initiatives we're talking about ... and the speed at which we are moving."

Meanwhile, Stifel, Nicolaus & Co. analyst David Schick told investors in a note Monday that Circuit City had $215 million in short-term borrowings under its credit facility, up from $55 million from last quarter.

"Circuit City's pressures are coming from all sides and the overarching macroeconomic economic conditions are still quickly worsening," Schick said. "The risks of bankruptcy are very real. ... Vendors will have to decide how they plan to do business at CC."

Besanko said the company feels vendors will keep providing the support the company needs to move through the holiday season.

"So far we've had no issues in building the inventory we need for the holiday and I'm not anticipating any issues on a go-forward basis," Besanko said.

Marcum, one of three directors elected to Circuit City's board in June as part of a deal to defuse a proxy fight one of the company's major shareholders, said that heading into the most important selling season, the company is "focused on consistent and successful execution in key areas that will drive traffic and build customer confidence."

The company is undertaking a comprehensive review of its business and identifying key initiatives for the holiday season, including improving customer service, improving inventory on key items and launching a new marketing brand campaign.

In May, Circuit City announced it had hired Goldman Sachs & Co. to explore strategic options, but has never given an official timetable for any action. The move came as the retailer opened its books to Blockbuster Inc., which had made a takeover ccbid of more than $1 billion with plans to create a 9,300-store chain to sell electronic gadgets and rent movies and games. The Dallas-based movie-rental chain withdrew its bid in July because of market conditions.

While strategic options will always be explored, Circuit City said Monday, it is "prudent to focus internally on improving the company's performance in order to operate as a standalone business." Circuit City also suspended store openings beginning with fiscal 2010.

Circuit City shares fell 29 cents, or 21.2 percent, to end at $1.08 Monday, after hitting a low of $1.01 earlier in the session. The stock had not traded that low since 1986.


On the Net:

Circuit City: