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Plummeting TV Margins Sink Circuit City

19 Dec, 2006 By: Erik Gruenwedel

Steep discounts by flat-panel TV manufacturers apparently caught Circuit City Stores Inc. off guard as the No. 2 consumer electronics store posted a third quarter (ended Nov. 30) loss of $16 million, compared to a profit of $10.1 million during the same period last year.

In a conference call with investors, company executives said price declines for medium and large LCD TVs exceeded 50% of projections. Plasma TVs prices dropped three times company expectations.

The unexpected result — analysts had projected a profit — plunged the New York-based retailer's stock price more than 19% in heavy afternoon trading.

Comparable same-store sales (open at least a year) increased 5.5% and net sales — spurred by a 67% increase in Internet-based sales, 72% increase in service revenue and 84% rise in call center sales — increased 7.3% to $2.93 billion from $2.73 billion last year.

Same-store comp sales of DVD movies dropped by “mid-single digit” percent while DVD player sales dropped by “double digits.”

“Clearly, the quarter's performance did not meet our profit expectations,” said Philip Schoonover, chairman, president and CEO of Circuit City. “Although flat panel TV unit sales increased, the increase in TV units and associated attachment sales did not produce the gross profit dollar results needed to offset these price declines.”

In other words, boosted sales came at a price: profit.

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