Circuit City Stores, Inc. Releases Fiscal Year 1999 Results
6 April 1999
Circuit City Stores, Inc. Releases Fiscal Year 1999 Results and March Sales for the Circuit City Group and the CarMax Group
RICHMOND, Va., April 6 -- Circuit City Stores, Inc. today
released March 1999 sales and fiscal year 1999 and fourth quarter 1999
earnings for the company, the Circuit City Group and the CarMax
Group .
March Sales
For Circuit City Stores, Inc. total sales rose 17 percent to
$893.8 million in March 1999 from $762.9 million in March 1998. For the
Circuit City Group, total sales were $744.2 million, which represents a
15 percent increase from March 1998 sales of $648.5 million and a 9 percent
increase in comparable store sales. Total sales for the CarMax Group were
$149.6 million, which represents a 31 percent increase from March 1998 sales
of $114.4 million and an 11 percent decrease in comparable store sales.
"For our Circuit City business, the sales trends we enjoyed in fiscal 1999
have extended into fiscal 2000," said Richard L. Sharp, chairman and chief
executive officer of Circuit City Stores, Inc. "In March, we continued to
produce strong sales across all product categories.
"CarMax's used-car sales remained below our expectations and primarily
reflect highly competitive pricing in the new-car segment and our need to
improve consumer awareness and customer traffic in several large metropolitan
markets," said Sharp. "New-car sales were ahead of expectations, continuing
the trend produced throughout last year."
Fiscal Year 1999 and Fourth Quarter Results
Circuit City Stores, Inc.: For the year ended February 28, 1999, Circuit
City Stores, Inc. total sales increased 22 percent to $10.80 billion from
$8.87 billion. Net earnings rose 37 percent to $142.9 million in fiscal 1999
from $104.3 million in fiscal 1998.
For the fourth quarter, total sales for Circuit City Stores, Inc.
increased 19 percent to $3.40 billion in fiscal year 1999 from $2.85 billion
in fiscal year 1998. Net earnings rose 62 percent to $84.7 million in fiscal
1999 compared with $52.4 million in fiscal 1998.
Circuit City Group: Total sales for the Circuit City Group rose 17 percent
in fiscal year 1999 to $9.34 billion from $8.00 billion in fiscal year 1998.
Comparable store sales increased 8 percent. Excluding the impact of the
company's investment in Digital Video Express and the Group's retained
interest in CarMax, earnings for the Circuit City Group increased 48 percent
to $235.0 million, or $2.34 per share, in fiscal 1999 from $159.2 million, or
$1.60 per share, in fiscal 1998. Including Divx, but before the Inter-Group
Interest in CarMax, earnings were $166.4 million in fiscal 1999 compared with
$138.5 million in fiscal 1998. Including the impact of both Divx and CarMax,
net earnings for the Circuit City Group rose 32 percent to $148.4 million, or
$1.48 per share, in fiscal 1999 from $112.1 million, or $1.13 per share, in
fiscal 1998.
For the fourth quarter, total sales for the Circuit City Group rose
17 percent to $3.03 billion in fiscal year 1999 from $2.59 billion in fiscal
year 1998. Comparable store sales rose 10 percent. Excluding the impact of
Divx and the Group's retained interest in CarMax, earnings for the Circuit
City Group rose 50 percent to $126.8 million, or $1.26 per share, in fiscal
1999 from $84.3 million, or 85 cents per share, in fiscal 1998. Including
Divx, but before the Inter-Group Interest in CarMax, earnings were
$94.7 million in fiscal 1999 compared with $74.5 million in fiscal 1998.
Including the impact of both Divx and CarMax, net earnings for the Circuit
City Group rose 52 percent to $87.0 million, or 86 cents per share, in fiscal
1999 from $57.4 million, or 58 cents per share, in fiscal 1998.
CarMax Group: Total sales for the CarMax Group grew 68 percent to
$1.47 billion in fiscal year 1999 from $874.2 million in fiscal 1998.
Comparable store sales declined 2 percent. The net loss was $23.5 million in
fiscal 1999 versus $34.2 million in fiscal 1998. The fiscal 1998 loss
includes a fourth quarter write-down of assets associated with the closure of
reconditioning facilities and the cost of excess real estate that increased
the net loss by $7.0 million. The net loss attributed to the CarMax Group
stock was $5.5 million, or 24 cents per share, in fiscal 1999, compared with
$7.8 million, or 35 cents per share, in fiscal 1998.
For the fourth quarter, total sales for the CarMax Group rose 42 percent
to $374.0 million in fiscal year 1999 from $263.1 million in fiscal year 1998.
Comparable store sales declined 4 percent. The net loss was $10.0 million in
fiscal 1999 versus $22.1 million in fiscal 1998. The net loss attributed to
the CarMax Group stock was $2.3 million, or 10 cents per share, in fiscal
1999, compared with $5.0 million, or 23 cents per share, in fiscal 1998.
Circuit City Group Review
"In fiscal 1999, the consumer electronics industry began to see an
acceleration in the sales pace for many product categories," said Sharp. "At
Circuit City, our growth in the consumer electronics area was led by sales of
new technologies such as DIRECTV; wireless communications; DVD players,
especially those with the Divx feature; and digital camcorders. We also
continued to produce exceptionally strong personal computer sales despite
significant declines in average retails.
"The addition of 37 Superstores contributed to the total sales growth,"
said Sharp. "We added 10 stores in the New York metropolitan market, giving
us a total of 25 stores in that market. We also entered a number of smaller
markets and continued to fill in trade areas in other markets.
"Ongoing improvements in our inventory management and the strong sales of
more fully featured products that carry higher gross profit margins, partly
offset the impact of higher personal computer sales, which carry lower-than-
average gross margins, and an aggressive price climate," said Sharp. The
result was a gross profit margin for the Circuit City business of 24.4 percent
for fiscal year 1999 compared with 24.6 percent in fiscal year 1998. The
gross margin for the Circuit City Group, which includes an impact from the
investment in Divx, was 24.3 percent in fiscal 1999. Divx had no impact in
fiscal 1998.
"The comparable store sales increase was the primary contributor to the
improvement in the expense ratio," Sharp said. "The ratio, excluding selling,
general and administrative expenses associated with our investment in Divx,
was 20.1 percent this year compared with 21.1 percent last year. Including
Divx expenses, the ratio for the group decreased to 21.2 percent this year
from 21.5 percent last year."
Interest expense was 0.2 percent in fiscal 1999 compared with 0.3 percent
in fiscal 1998. In fiscal 1999, the Group produced a profit margin of
2.9 percent before taxes and the Inter-Group Interest in CarMax compared with
2.8 percent in the same period last year. The effective income tax rate was
38.1 percent in fiscal 1999 and 38.3 percent in fiscal 1998. The Circuit City
Group's net profit margin before the Inter-Group Interest in the CarMax Group
was 1.8 percent in fiscal 1999 compared with 1.7 percent in fiscal 1998.
The CarMax Group produced a net loss in both fiscal years. The net loss
related to the Circuit City Group's Inter-Group Interest in the CarMax Group
reduced net earnings for the Circuit City Group by $18.1 million in fiscal
1999 and $26.5 million in fiscal 1998.
In the fourth quarter, the Circuit City business produced a gross profit
margin of 24.4 percent in fiscal 1999 and 25.1 percent in fiscal 1998. The
decrease reflects a high percentage of personal computer sales and aggressive
pricing across all categories. Including the margin impact from the Divx
investment, the fiscal 1999 gross profit margin for the group was
24.1 percent. Divx had no gross margin impact in the fourth quarter of fiscal
1998. Excluding Divx-related expenses, the expense ratio for the Circuit City
business declined to 17.5 percent from 19.5 percent. The group ratio, which
included Divx, was 18.9 percent this year compared with 20.1 percent last
year. Interest expense was 0.1 percent of sales in the fourth quarter of
fiscal 1999 and 0.3 percent in the same prior year period. The profit margin
before taxes and the Inter-Group Interest in the CarMax Group was 5.1 percent
in the fourth quarter of fiscal 1999 versus 4.7 percent in the same period of
fiscal 1998. The effective tax rate was 38.1 percent in the fourth quarter of
fiscal 1999 and 38.3 percent in the fourth quarter of fiscal 1998. For the
quarter, the Circuit
City Group's net profit margin before the Inter-Group Interest was
3.1 percent in fiscal 1999 versus 2.9 percent in fiscal 1998. For the
quarter, the net loss related to the Circuit City Group's Inter-Group Interest
in the CarMax Group reduced Circuit City Group net earnings by $7.7 million in
fiscal 1999 compared with $17.1 million in fiscal 1998.
"We are pleased that in fiscal 1999, the consumer electronics segment of
our business began to show significant sales strength," said Sharp. "We
believe that healthy computer sales, continued product innovation and Circuit
City's success at introducing new products to the consumer will support strong
sales growth in fiscal 2000. We continue to believe that our Circuit City
business can produce earnings growth in the 20 percent to 25 percent range
this fiscal year.
"We also are excited about the possibilities for Divx," Sharp said. "In
the fourth fiscal quarter, we believe that Divx-featured DVD players accounted
for 20 percent to 25 percent of all DVD players sold. In the coming year, we
expect to add four more brands, giving us a total of eight player brands in
the market. We also continue to pursue financing and distribution
alternatives and believe that we can conclude one or more transactions during
the year.
The CarMax Group
"As we have previously noted, CarMax's sales reflect lower-than-
anticipated results in several multi-store markets and the impact of
aggressive incentive and rebate promotions among the new-car franchises with
which CarMax competes," Sharp said. "The total sales growth reflects the
addition of 10 used-car superstores, four integrated new-car franchises, one
stand-alone new-car franchise and the nine-franchise CarMax auto mall in
Kenosha, Wisc.
"The profit improvement plan instituted at the end of fiscal 1998 and
better inventory management during the second half of the fiscal year
contributed to strong increases in CarMax's gross profit margin throughout
fiscal 1999," said Sharp. The gross margin was 11.7 percent in fiscal 1999
compared with 8.4 percent in fiscal 1998. The profit improvement plan
included the elimination of centralized reconditioning, refinements in pricing
and the introduction of consumer electronics accessory sales at all locations.
"The lower-than-expected sales contributed to an expense ratio of
13.9 percent in fiscal 1999 compared with 14.6 percent in fiscal 1998," said
Sharp. The fiscal 1998 ratio includes an $11.5 million write-down of assets.
Excluding that write down, the fiscal 1998 ratio was 13.3 percent. Interest
expense was 0.4 percent of sales in fiscal 1999 and 0.2 percent in fiscal
1998.
For the fiscal year, the Group produced a pre-tax loss of $38.5 million in
fiscal 1999 compared with $56.1 million in fiscal 1998. The effective income
tax rate was 39.0 percent in fiscal 1999 and fiscal 1998. The effective
income tax rate reflects income tax benefits related to the Group's losses.
In the fourth quarter, the CarMax Group produced a gross profit margin of
12.4 percent in fiscal 1999 compared with 8.6 percent in fiscal 1998. The
expense ratio was 16.0 percent compared with 22.1 percent. The prior year
ratio was 17.8 percent, excluding the write-down of assets explained above.
Interest expense was 0.8 percent compared with 0.3 percent. The pre-tax loss
was $16.4 million in the fourth quarter of fiscal 1999 versus $36.3 million in
the same period of fiscal 1998. The effective tax rate was 39.0 percent in
the fourth quarter of both fiscal years.
"Although used-car sales were below our plan, CarMax's average used-car
store volumes continued to significantly exceed automotive industry averages,"
Sharp said. "These volumes reflect strong consumer enthusiasm for our low
no-haggle price, high-quality and high-integrity offer. Our single-store
markets and the multi-store Washington/Baltimore and Atlanta markets continued
to produce exceptional results, and we saw strong sales from our new-car
franchises throughout the year. Nevertheless, we must improve our overall
performance to achieve attractive returns for our shareholders.
"As previously announced, we are delaying our entry into the Los Angeles
market and in fiscal 2000 will focus on improving profitability in existing
multi-store markets," Sharp said. "Our efforts will focus on the addition of
satellite stores and new-car franchises into these markets and on the
development of marketing programs that generate increased consumer awareness
and higher customer traffic. We expect the result will be an improvement to
the modest loss or break-even range."
Circuit City is a leading national retailer of brand-name consumer
electronics, personal computers, major appliances and entertainment software.
CarMax is the nation's leading specialty retailer of used cars and a rapidly
growing new-car retailer. With headquarters in Richmond, Va., Circuit City
Stores, Inc. operated at month-end 537 Superstores, two consumer
electronics-only stores, 48 mall-based Circuit City Express stores and
30 CarMax superstores, including two free-standing new-car locations. For
more information access the Circuit City web site at
http://www.circuitcity.com, the CarMax web site at http://www.carmax.com and
the Divx web site at http://www.divx.com.
This release contains forward-looking statements, which are subject to
risks and uncertainties, including, but not limited to, risks associated with
the development of new business concepts and risks associated with year 2000
issues. Additional discussion of factors that could cause actual results to
differ materially from management's projections, forecasts, estimates and
expectations is contained in the company's SEC filings.
CIRCUIT CITY STORES, INC.
Consolidated Statements of Earnings
Periods Ending February 28
(Amounts in thousands except per share data)
Three Months Twelve Months
1999 1998 1999 1998
Net Sales and
Operating Revenues $3,403,307 $2,849,102 $10,804,447 $8,870,797
Cost of sales,
buying and
warehousing 2,626,579 2,177,898 8,359,428 6,827,133
Gross Profit 776,728 671,204 2,445,019 2,043,664
Selling, general and
administrative
expenses 633,179 578,578 2,186,177 1,848,559
Interest expense 6,960 8,089 28,319 26,861
Earnings Before
Income Taxes 136,589 84,537 230,523 168,244
Provision for
income taxes 51,904 32,123 87,599 63,933
Net Earnings $84,685 $52,414 $142,924 $104,311
Net earnings (loss)
attributed to:
Circuit City Group
common stock $87,020 $57,434 $148,381 $112,074
CarMax Group
common stock (2,335) (5,020) (5,457) (7,763)
$84,685 $52,414 $142,924 $104,311
Weighted average common shares:
Circuit City Group:
Basic 99,525 98,233 99,152 98,027
Diluted 100,904 99,390 100,406 99,204
CarMax Group 22,809 22,152 22,604 22,001
Net Earnings (Loss) Per Share:
Circuit City Group:
Basic $0.87 $0.58 $1.50 $1.14
Diluted $0.86 $0.58 $1.48 $1.13
CarMax Group $(0.10) $(0.23) $(0.24) $(0.35)
CIRCUIT CITY STORES, INC.
Consolidated Balance Sheets
(Amounts in thousands)
February 28
1999 1998
Assets
Current Assets:
Cash and cash equivalents $265,880 $116,612
Net accounts receivable 574,316 598,035
Inventory 1,517,675 1,410,545
Prepaid expenses and
other current assets 36,644 21,157
Total Current Assets 2,394,515 2,146,349
Property and
equipment, net 1,005,773 1,048,434
Other assets 44,978 36,918
Total Assets $ 3,445,266 $3,231,701
Liabilities
and Stockholders' Equity
Current Liabilities:
Current installments of
long-term debt $2,707 $1,301
Accounts payable 799,733 765,391
Short-term debt 8,016 5,976
Accrued expenses and other
current liabilities 143,585 132,802
Deferred income taxes 9,764 356
Total Current Liabilities 963,805 905,826
Long-term debt, excluding
current installments 426,585 424,292
Deferred revenue and other
liabilities 112,085 145,107
Deferred income taxes 37,661 26,437
Total Liabilities 1,540,136 1,501,662
Stockholders' Equity 1,905,130 1,730,039
Total Liabilities
and Stockholders' Equity $3,445,266 $3,231,701
CIRCUIT CITY GROUP
Statements of Earnings -- Periods Ending February 28
(Amounts in thousands except per share data)
Three Months Twelve Months
1999 1998 1999 1998
Net Sales
and Operating
Revenues $ 3,029,343 $2,585,969 $ 9,338,149 $7,996,591
Cost of sales,
buying and
warehousing 2,299,023 1,937,416 7,065,396 6,026,434
Gross Profit 730,320 648,553 2,272,753 1,970,157
Selling, general and
administrative
expenses 573,410 520,357 1,981,755 1,720,737
Interest expense 3,921 7,397 21,926 25,072
Earnings Before Income
Taxes And Inter-Group
Interest in the
CarMax Group 152,989 120,799 269,072 224,348
Provision for
income taxes 58,301 46,266 102,634 85,814
Earnings Before
Inter-Group
Interest in the
CarMax Group 94,688 74,533 166,438 138,534
Net loss related to
the Inter-Group
Interest in the
CarMax Group 7,668 17,099 18,057 26,460
Net Earnings $87,020 $57,434 $148,381 $112,074
Weighted average
common shares:
Basic 99,525 98,233 99,152 98,027
Diluted 100,904 99,390 100,406 99,204
Net Earnings Per Share:
Basic $0.87 $0.58 $1.50 $1.14
Diluted $0.86 $0.58 $1.48 $1.13
CIRCUIT CITY GROUP
Balance Sheets
(Amounts in thousands)
February 28
1999 1998
Assets
Current Assets:
Cash and cash equivalents $248,201 $90,200
Net accounts receivable 476,952 537,169
Merchandise inventory 1,292,215 1,266,575
Prepaid expenses and
other current assets 36,024 19,798
Total Current Assets 2,053,392 1,913,742
Property and equipment, net 801,827 834,347
Inter-Group Interest in
the CarMax Group 260,758 278,239
Other assets 18,849 35,290
Total Assets $3,134,826 $3,061,618
Liabilities
and Group Equity
Current Liabilities:
Current installments of
long-term debt $1,457 $1,301
Accounts payable 739,895 714,171
Short-term debt 3,411 5,591
Accrued expenses and other
current liabilities 135,029 129,198
Deferred income taxes 2,090 --
Total Current Liabilities 881,882 850,261
Long-term debt, excluding
current installments 286,865 396,906
Deferred revenue and other
liabilities 107,070 139,841
Deferred income taxes 33,536 26,278
Total Liabilities 1,309,353 1,413,286
Group Equity 1,825,473 1,648,332
Total Liabilities
and Group Equity $ 3,134,826 $3,061,618
CARMAX GROUP
Statements of Operations -- Periods Ending February 28
(Amounts in thousands except per share data)
Three Months Twelve Months
1999 1998 1999 1998
Net Sales and
Operating Revenues $373,964 $263,133 $1,466,298 $874,206
Cost of sales 327,556 240,482 1,294,032 800,699
Gross Profit 46,408 22,651 172,266 73,507
Selling, general and
administrative
expenses* 59,769 58,221 204,422 127,822
Interest expense 3,039 692 6,393 1,789
Loss Before
Income Tax Benefit 16,400 36,262 38,549 56,104
Income tax benefit 6,397 14,143 15,035 21,881
Net Loss $10,003 $22,119 $23,514 $34,223
Net loss attributed to:
Circuit City Group $7,668 $17,099 $18,057 $26,460
CarMax Group $2,335 $5,020 $5,457 $7,763
Weighted average
common shares 22,809 22,152 22,604 22,001
Net Loss Per Share $0.10 $0.23 $0.24 $0.35
* Including an $11.5 million write-down of assets related to owned and
leased real estate for the three- and twelve-month periods ended February 28,
1998.
CARMAX GROUP
Balance Sheets
(Amounts in thousands)
February 28
1999 1998
Assets
Current Assets:
Cash and cash equivalents $17,679 $26,412
Net accounts receivable 97,364 60,866
Inventory 225,460 143,970
Prepaid expenses and
other current assets 620 1,359
Total Current Assets 341,123 232,607
Property and equipment, net 203,946 214,087
Other assets 26,129 1,628
Total Assets $571,198 $448,322
Liabilities and
Group Equity
Current Liabilities:
Current installments of
long-term debt $1,250 --
Accounts payable 59,838 51,220
Short-term debt 4,605 385
Accrued expenses and other
current liabilities 8,556 3,604
Deferred income taxes 7,674 370
Total Current Liabilities 81,923 55,579
Long-term debt 139,720 27,386
Deferred revenue and other
liabilities 5,015 5,266
Deferred income taxes 4,125 145
Total Liabilities 230,783 88,376
Group Equity 340,415 359,946
Total Liabilities
and Group Equity $571,198 $448,322