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Circuit City Beats Odds with Profit

9 Apr, 2008 By: Erik Gruenwedel

Wall Street may be sounding the death knell for Circuit City Stores Inc., but the No. 2 consumer electronics retailer earned a slight reprieve when it posted fourth quarter fiscal year 2008 (ended Feb. 29) profit of $4.8 million, compared to a loss of $4.2 million during the same period last year.

Richmond, Va.-based Circuit City, which hasn't reported profit since the second quarter FY 2007, cited $65 million in cost reductions that helped offset an 8% decline in revenue to $3.65 billion from $3.95 billion last year. The company cut sales, general and administrative (SG&A) expenses by more than $150 million for the year.

Entertainment revenue in quarter, which included DVD movies, music CDs and video games, fell more than 6% to $467.8 million, compared to $498.1 million. For the fiscal year, revenue increased nearly 4% to $1.37 billion from $1.32 billion last year, driven primarily by double-digit sales gains in video game software and related products.

In a call with investors, chairman and CEO Philip Schoonover said Circuit City would continue to push entertainment sales online in addition to further promoting its in-home Firedog service.

Web sales and Firedog service revenue in the quarter increased 14% and more than 11%, respectively.

Total full-year sales topped $11.7 billion, down 5.5% from more than $12.4 billion in the prior year.

All important same-store sales (open at least 12 months), however, fell more than 10% in the quarter and 7.7% for the fiscal year.

Schoonover reiterated his quarterly mantra, namely that the Circuit City was on the right track despite reports to the contrary.

He cited third-party research that claimed Circuit City achieved a 10% increase in customer effectiveness from March 2007 through March 2008, no small matter considering the retailer last year fired more than 3,400 hourly employees and then offered them re-employment at lower pay.

The CEO refused to comment on the 800-pound gorilla on many analysts' minds, namely outspoken criticism from dissident shareholder and Hollywood Video co-founder Mark Wattles, who has proffered a slate of board nominees and called for Schoonover to be fired.

In a letter to Wattles, Mikael Salovaara, lead director for Circuit City, said the company's board would meet with Wattles, whose investment firm owns a 6.5% stake, to help promote a “more productive” dialogue between the two parties, according to a regulatory filing.

Wattles and Salovaara are reportedly slated to meet April 11.

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