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Circuit City's Q2 Same-Store Sales Slip 21%, Profits Exceed Estimates

7 Sep, 2001 By: Hive News

Circuit City Group shares fell 22% after the electronics chain said fiscal second-quarter same-store sales declined more than some analysts expected, according to a Bloomberg News report.

Sales at stores open at least a year fell 21% in the quarter ended Aug. 31, the company said.

Circuit City's results heightened concern that it's losing market share to biggerrival Best Buy Co., which yesterday said quarterly same-store sales rose 2.8%, analysts said. While Circuit City renovates its stores, some consumers have turned to Best Buy for goods ranging from DVDs to appliances, or todiscounters for low prices on analog items like VCRs, they told Bloomberg.

"Their stores are old, space-constrained, and they have been unable to communicate clearly to the consumer the change in their product mix," said SWS Securities analyst Harry Katica, who has a "neutral" rating on the shares.

"Clearly we are trying to focus on driving customers into our stores," said c.e.o. W. Alan McCollough on a conference call with analysts. McCollough decided last year to get rid of large appliances such as refrigerators from Circuit City stores to make room for more digital and software products.

Excluding appliances, sales at stores open at least a year fell 9%, Circuit City said.

Total sales, which include new stores, also fell more than forecast. Revenue dropped 19% to $2.04 billion from $2.51 billion a year earlier, the company said. Analysts' average sales estimate was $2.14 billion.

Weak sales of desktop-computer continued during the quarter, the company said. It was partially blunted by better sales of digital televisions and digital cameras, along with other products being featured in space formerly occupied by appliances.

While sales missed forecasts, second-quarter profit exceeded analysts' estimates, Circuit City said.

Earnings fell to about 2 cents to 3 cents a share, a company spokesperson said. Analysts' average estimate was 1 cent. A year earlier, the company had net income of 27 cents. It will report final results Sept. 19.

According to Bloomberg, McCollough's decision to get rid of big appliances may be helping the company widen its profit margins, analysts said.

Selling, general and administrative expenses also may have declined during thequarter, one analyst said, adding that the Circuit City electronics chain's loss in the quarter was at "the better end" of 6 cents to 11 cents, narrower than forecast.

The company said it renovated 23 of its stores during the quarter, and now has 80 of its 598 stores in new formats designed to boost sales. The retailer began a new marketing campaign in July.

Bloomberg said Circuit City also got a boost from its estimated 66% stake in CarMaxGroup, a retailer that mainly sells used cars. CarMax will contribute about 8 cents to 9 cents in profit, according to an analyst.

Shares of Richmond, Virginia-based Circuit City fell $3.56 to $12.70. The stock had risen 41% this year, after plunging last year from a high of $65.19 in March 2000.

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