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Circuit City Touts Improved DVD Sales

19 Dec, 2005 By: Holly J. Wagner

Circuit City is one of the few chains to turn in improved DVD sales for the third quarter partly because the company jumped into the promotional ring earlier and more aggressively than in years past.

The chain saw a single-digit comp-store sales increase in video software that partly offset double-digit comp declines in music software and game products. Executives attributed the video software increase to more competitive pricing in the third quarter ended Nov. 30.

Last year video software sales suffered because the chain was slow to match competitors' pricing.

“Our entertainment software strategy is to meet the needs of our heaviest spender,” chairman and CEO W. Alan McCollough told analysts. Entertainment software customers spend more on other things, so competitive pricing along with the drive to improve the customer experience has helped to increase the overall ticket size even though the downward price trend for DVDs is reducing margins.

The chain's domestic gross profit margin decreased 79 basis points, half of which executives attributed to a decline in store merchandise margin, particularly in video software and projection televisions.

An increase of $16 million in advertising spending for the quarter vs. last year's third quarter, led by two catalogs sent directly to consumers – the first a home theater catalog sent out in October and the second a gift catalog that followed – helped get more people into stores, executives said.

"Our direct sales channel, led by circuitcity.com, continued to post impressive sales gains, particularly on the day after Thanksgiving,” McCollough said. “For the quarter, Web-originated sales grew by 74 percent over the prior year.”

The chain's new 24/24 policy, which gives customers a $24 gift card if their Web purchases are not ready for pickup at a nearby store within 24 minutes after the order is placed, helped drive the increase, executives said.

Xbox 360 was a hit and appears on track to help sales in other categories as more consoles become available.

“For us to win in home entertainment we have to have the whole family on board and we think high-definition gaming brings it back to the living room,” McCollough said, adding that could help drive sales in other areas such as CDs and DVD hardware.

For the quarter, total sales increased 14.7 percent to $2.91 billion from $2.53 billion in the same period last year, with consolidated comp store sales up 13.1 percent from the prior year.

Investors seemed to like what they heard, as the chain's stock was up $1.18 per share, or 5.5 percent, in early trading.

In a separate announcement, the company reported that McCollough will retire at the end of February and tapped company president Phil Schoonover as his successor. Schoonover will take the reins as CEO March 1. McCollough will remain on the board until its annual meeting in June.

Schoonover, 45, joined Circuit City as EVP and chief merchandising officer in October 2004 and was named president in February 2005. He's been responsible for the store operations, marketing, merchandising, supply chain, business development and strategy groups.

Prior to joining Circuit City, he was EVP of customer segments at Best Buy from April 2004 until September 2004. Schoonover served in various senior management positions in merchandising and new business development at Best Buy from 1995 to 2004. He has also held senior management positions with TOPS Appliance City and senior sales and marketing positions with Sony Corp. of America.

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