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Circuit City posts huge 3Q loss

Electronics retailer Circuit City Stores Inc. on Friday reported a wider-than-expected loss for the third quarter, driven by lower extended warranty sales and restructuring costs.
/ Source: The Associated Press

Electronics retailer Circuit City Stores Inc. on Friday reported a wider-than-expected loss for the third quarter, driven by lower extended warranty sales and restructuring costs.

Shares of the nation's second biggest consumer electronics retailer tumbled almost 25 percent in morning trading.

"We are very dissatisfied with our third-quarter results," said Philip J. Schoonover, chairman, president and chief executive, in a statement. Schoonover said he believes the issues are "primarily self-induced" and within the company's control to improve.

The results came three days after larger rival Best Buy Co. reported its third-quarter profit jumped 52 percent, ahead of analyst expectations for the Richfield, Minn., retailer.

For the three months ended Nov. 30, Circuit City's losses ballooned to $207.3 million, or $1.26 per share, from $20.4 million, or 12 cents per share, a year ago. Excluding tax-related accounting items, losses totaled 64 cents per share in the latest period.

Sales slipped 3 percent to $2.96 billion from $3.06 billion a year earlier, with sales at stores open at least a year falling 5.6 percent.

The results missed consensus estimates of analysts polled by Thomson Financial, who predicted a loss of 31 cents per share on revenue of $3 billion.

Looking ahead, the company said that assuming current sales and margin trends continue for the rest of the fourth quarter, it will report a "modest" pretax loss from continuing operations for the quarter.

Circuit City also said it has received a commitment to more than double its $500 million credit line to $1.3 billion.

Its shares fell $1.66, or 24.9 percent, to $5 in morning trading Friday after sinking to a 52-week low of $4.93 earlier in the session.

In the third quarter, Circuit City's video sales fell by high single-digits, as significant sales decreases in tube and projection televisions more than offset double-digit sales growth in flat-screen televisions. Sales of camcorders and DVD hardware fell by double digits.

Sales of information-technology products were up slightly in the third quarter, as sales of notebook computers grew and sales of desktop computers declined by double digits.

Circuit City's audio sales fell by double digits in the period. While purchases of navigation products saw triple-digit increases, portable digital audio, home audio and digital satellite radio items saw a significant sales decrease.

In the entertainment category, the company saw a double-digit increase in video gaming products, while video and music software declined by double-digits.

Revenue from Firedog, the company's PC services and home-installation business, increased 29 percent, Circuit City said. Sales of extended warranties were $67.4 million, compared to $103.3 million in the same period last year.

The company said it planned to open 61 to 63 new and relocated U.S. Superstores in fiscal 2008; two-thirds of the openings will be 20,000-square-foot stores, called "The City," with a new look and different fixtures, lighting and product selection. It also expects to open 50 to 60 new and relocated stores in fiscal 2009.

On Wednesday, Circuit City announced the approval of millions in cash incentives to retain its top talent following the departure of several key executives over the past year. Executive vice presidents could claim retention awards of $1 million each and senior vice presidents could get $600,000, provided they stay with the company until 2011, according a filing with the U.S. Securities and Exchange Commission.