Circuit City Announces Three-Year Plan to Remodel All Superstores Nationwide
25 July 2000
Circuit City Announces Three-Year Plan to Remodel All Superstores Nationwide
Every Store to Receive Expanded Consumer Electronics
And Home Office Assortments and New 'Take-With' Departments
By the Holiday Selling Season
RICHMOND, Va., July 25 Circuit City Stores, Inc. today announced that the board of
directors approved late yesterday a three-year plan to strategically
reposition the company exclusively as a retailer of consumer electronics and
home office products, adding a much greater selection of "take-with"
merchandise while maintaining the company's commitment to high service and
knowledgeable sales counselors who help consumers understand new product
technologies and features.
Under the three-year plan, virtually all Superstores will be remodeled.
The company will discontinue the sale of major appliances and replace all
retail display fixtures to make room for the expanded consumer electronics and
home office assortments and create more flexible selling space. As announced
earlier this calendar year, stores in central and south Florida are already
undergoing this full remodel process.
As an interim step to these major remodels, the company will reformat all
stores over the next three months to replace the major appliance category with
an expanded selection of personal computers; imaging products, including
digital cameras; peripherals; games; and computer software. All merchandise
displayed in the space previously occupied by the appliance category will be
directly accessible to the customer with cash registers to provide easy
checkout. A previously announced test of freestanding appliance stores in
Florida will be discontinued.
"We began expanding selections in these categories two years ago and took
that initiative a step further last year when we placed more products on the
sales floor directly accessible to the consumer," said W. Alan McCollough,
president and chief executive officer of Circuit City Stores, Inc. "These
initiatives increase sales volumes by generating additional store traffic and
speeding the transaction for the consumer especially during the peak selling
seasons.
"Continued strength of the consumer electronics and home office categories
and the recent substantial weakness in major appliances accelerated our
decision to reformat all existing Superstores," said McCollough. "At this
point in the second quarter, we are producing high single digit comparable
store sales increases in the combined consumer electronics and home office
categories while comparable store sales in the major appliance category remain
substantially negative.
"The major appliance business carries high fixed costs and tends to be
more cyclical than other retail categories," said McCollough. "Last year, it
represented slightly less than 14 percent of our sales, but its profitability
was below average. We believe the new store design, fully devoted to consumer
electronics and home office products, creates an exciting environment for the
digital technologies that will drive industry growth during the coming decade
while also making more products easily accessible to consumers. We anticipate
that even this year's more limited remodels will be able to replace the lost
major appliance sales with more profitable consumer electronics and home
office sales."
To exit the appliance business, the company will close six distribution
centers by the end of this year and two more over the next 12 months. Circuit
City will maintain control over its in-home major appliance repair business,
although repairs will be subcontracted to an unrelated third party. "The
distribution and service changes related to this strategic repositioning will
result in the elimination of approximately 1,000 positions. Many of these
Associates will be offered jobs in other areas of the business; where
positions are not available, severance payments and other assistance will be
provided," said McCollough. "These Associates have been highly valued members
of the Circuit City team, and we regret that positions are not available for
everyone."
Sales counselors specializing in major appliances will be offered
comparable positions in other product categories.
"We expect the full remodels to cost an average of $2.5 million per store,
but generate per store sales increases of almost 30 percent from current
levels and after-tax returns of approximately 30 percent on the incremental
investment," said McCollough. "Approximately $500,000 of the per store
remodeling costs will be expensed in the quarter when construction occurs."
The company anticipates that the Florida remodels already underway will
cost $15 million before taxes, reducing this year's second quarter earnings by
3 cents per share and third quarter earnings by 2 cents per share. These
reductions were included in initial expectations for the year. "The decision
to reformat all stores by the holidays will have an additional adverse impact
on the second and third quarter results, but we expect the more profitable
consumer electronics and home office sales to benefit earnings as early as the
fourth quarter," said McCollough.
Excluding the one-time costs of exiting the appliance business, the
company expects second quarter earnings per share for the Circuit City
business of approximately 32 cents, compared with 35 cents in the same period
last year. This expectation principally reflects the decline in major
appliance sales during the quarter and the Florida remodeling costs discussed
above. In addition, the company expects to incur one-time pretax costs of
$30 million, reducing earnings per share by 9 cents. These costs relate to
distribution center lease terminations, employee severance, fixed asset
impairment and the write-off of service parts.
During the third quarter, the company expects to incur pretax expenses of
$30 million for construction to reformat existing Superstores and $15 million
for excess retail markdowns to rapidly exit the appliance category. The lost
sales from the appliance business are expected to reduce third quarter pretax
earnings by an additional $10 million. On average, interim renovations will
cost approximately $90,000 per store, of which $55,000 will be expensed.
Third quarter earnings per share from the Circuit City business are expected
to be approximately 16 cents after the 17-cent impact related to these costs.
"We expect the fourth quarter to benefit from the store changeover and the
end of the related costs," said McCollough. "We anticipate fourth quarter
earnings per share of approximately 98 cents, which reflects replacement of
the appliance sales with more profitable consumer electronics and home office
sales.
"For the full fiscal year, we expect our Circuit City business to generate
earnings per share, including non recurring charges, of approximately $1.60,
which equals last year's results," said McCollough. Earnings for the Circuit
City Group include earnings generated by the company's Circuit City business
and a contribution from the Circuit City Group's retained interest in the
CarMax Group.
"The consumer electronics and home office product categories are among the
most exciting in retail today," said McCollough. "Increased functionality is
being added for the consumer virtually every day. Our new store design,
combined with our e-commerce efforts, provides Circuit City customers more
ways to shop whether they are looking for traditional items or discovering new
technologies. We are combining the historical strength of our knowledgeable
sales counselors, who can help customers learn about the rapid developments in
our product categories, with easier access to more familiar products. We look
forward to bringing the new Circuit City to all our markets with interim
remodels this year and full remodels over the next three years."
Circuit City is a leading national retailer of brand-name consumer
electronics, personal computers and entertainment software. With headquarters
in Richmond, Va., Circuit City operates 573 Superstores and 43 mall-based
Circuit City Express stores. For more information, access the Circuit City
web site at http://www.circuitcity.com .
This release contains forward-looking statements, which are subject to
risks and uncertainties. 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.