Circuit City's Shares Tumble After Loss Widens
Saturday, December 22, 2007
RICHMOND -- Holiday shopping might not be enough to save the fourth quarter for struggling electronics retailer Circuit City Stores.
Executives with the Richmond company said Friday that they expect a modest loss in the period, despite shoppers' usual holiday hunger for televisions and other high-tech gadgets.
Shares in the nation's second-biggest consumer electronics retailer tumbled Friday as investors reacted to a third-quarter loss driven by lower extended-warranty sales and business interruptions that the company blamed on restructuring efforts.
"Clearly we are very disappointed," chief executive Philip J. Schoonover told analysts during a conference call. Schoonover said the company underestimated the financial impact of cost-saving initiatives on sales. "Our current focus is to rebuild our selling culture," he said.
Its shares closed down $1.91, or 28.7 percent, to $4.75, falling below the previous 52-week low of $4.77.
The results came three days after larger rival Best Buy reported that 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 ($1.26 a share) from $20.4 million (12 cents) in the corresponding quarter a year earlier. 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, with sales at stores open at least a year falling 5.6 percent.
Schoonover maintained that Circuit City is on the right track. "We're implementing the right initiatives to lead to profitability and sustained growth," he said. "We're staying the course on our longer-term strategic initiatives."
Circuit City also said it received a commitment to more than double its $500 million credit line, to $1.3 billion.
The company said third-quarter sales improved strongly in several product categories, but those gains were offset by declining purchases of other electronics. Video-gaming products, for example, had a double-digit increase.
Significant sales decreases in tube and projection televisions more than offset double-digit sales growth in flat-panel televisions. Sales of camcorders and DVD hardware fell 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 with $103.3 million in the corresponding period a year earlier.
Circuit City laid off 3,400 workers in March to replace them with lower-paid new hires. This week, it announced the approval of millions of dollars in cash incentives to retain its top talent after 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 to a filing with the Securities and Exchange Commission.
The bonuses didn't sit well with Merrill Lynch analyst Danielle Fox, who questioned whether Circuit City should instead focus on incentives for the people who sell its products in stores.
"It seems like the top executives are getting paid more for poor performance," Fox said.
Schoonover said the bonuses are essential to keeping together a team he spent three years assembling. He added that Circuit City offers competitive starting wages for store employees and gives performance bonuses to supervisors.