Circuit City Stores Reports Second Quarter Earnings
18 September 2000
Circuit City Stores, Inc. Reports Second Quarter Earnings For the Circuit City Group and the CarMax Group
RICHMOND, Va., Sept. 18 Circuit City Stores, Inc. today
released second quarter and year-to-date net earnings and earnings per share
related to its two tracking stocks, Circuit City Group and CarMax
Group ; consolidated net earnings for the corporate entity and a
review of the operating performance of each of its two businesses.
SECOND QUARTER AND YEAR-TO-DATE EARNINGS
Circuit City Group
Total sales for the Circuit City Group rose 4 percent in the quarter ended
August 31, 2000, to $2.51 billion from $2.42 billion in last year's second
quarter. For the six-month period, total sales for the Circuit City Group
rose 7 percent to $4.96 billion from $4.63 billion in the first half of last
year.
Circuit City is in the process of fully remodeling stores in central and
south Florida, exiting the appliance business in all Superstores and
completing interim remodels of the remaining Superstore base. To help
investors understand the trends in the business, the company is providing the
following breakdowns of comparable store sales performance for the second
quarter and the first six months of the current fiscal year.
Comparable Store Sales Changes
Quarter Ended Six Months Ended
August 31, 2000 August 31, 2000
All Comparable Stores 0% 4%
Excluding Florida Remodels* 1% 4%
Excluding Appliances 6% 7%
Appliance Category-only (23%) (15%)
* Excluded during the remodeling period.
Earnings from continuing operations for the Circuit City Group include the
total sales and earnings for the company's Circuit City store business and the
Group's retained interest in the equity of the CarMax Group. Including the
Inter-Group Interest in CarMax, earnings from continuing operations for the
Circuit City Group were $55.3 million in this year's second quarter compared
with $73.7 million in the same period last year, and earnings per share from
continuing operations were 27 cents compared with 36 cents. Excluding the
interest in CarMax, earnings from continuing operations for the Circuit City
Group were $43.2 million compared with $71.2 million in the second quarter of
last fiscal year, and earnings per share were 21 cents compared with 35 cents.
Appliance merchandise markdowns and one-time costs associated with the
exit from the appliance business reduced earnings per share for the Circuit
City store business by 11 cents. The one-time costs included lease
terminations, employee severance, fixed asset impairment and other related
costs. The costs associated with fully remodeling the central and south
Florida stores reduced earnings per share by another 3 cents. Excluding the
markdowns, the one-time costs, the Florida remodeling costs and the interest
in CarMax, earnings per share for the Circuit City Group would have been
35 cents.
Including the Inter-Group Interest in CarMax, earnings from continuing
operations for the Circuit City Group were $112.5 million in the first
six months of this fiscal year compared with $115.1 million in the same period
last year, and earnings per share from continuing operations were 55 cents
compared with 56 cents. Excluding the interest in CarMax, earnings from
continuing operations for the Circuit City Group were $89.9 million compared
with $110.5 million in the first six months of last fiscal year, and earnings
per share were 44 cents compared with 54 cents. Excluding the second
quarter's appliance merchandise markdowns, exit costs and remodel expenses and
excluding the retained interest in CarMax for the six-month period, earnings
per share for the Circuit City store business were 58 cents in the first
six months of this year.
Earnings per Share from Continuing Operations - Circuit City Group
Quarter Ended Six Months Ended
August 31, August 31,
2000 1999 2000 1999
Circuit City Store Business $ 0.35 $ 0.35 $ 0.58 $ 0.54
Impact of Merchandise
Markdowns* (0.02) -- (0.02) --
Impact of Appliance Exit (0.09) -- (0.09) --
Impact of Florida Remodeling
Costs** (0.03) -- (0.03) --
Inter-Group Interest in CarMax 0.06 0.01 0.11 0.02
Circuit City Group $ 0.27 $ 0.36 $ 0.55 $ 0.56
* Reflected as a reduction in gross profit margins.
** Reflected as an increase in selling, general and administrative
expenses.
CarMax Group
Total sales for the CarMax Group rose 26 percent for the quarter ended
August 31, 2000, to $673.6 million from $535.7 million in last year's second
quarter. Comparable store sales rose 18 percent. For the six-month period,
total sales for the CarMax Group rose 27 percent to $1.30 billion from
$1.02 billion, and comparable store sales rose 16 percent.
Net earnings for the CarMax Group rose 403 percent to $16.3 million in
this year's second quarter from $3.2 million in the second quarter of last
fiscal year. The net earnings attributed to the CarMax Group stock were
$4.1 million, an increase of 432 percent from $775,000 in last year's second
quarter. The remainder of the CarMax Group's net earnings are attributed to
the Inter-Group Interest held by the Circuit City Group and thus to the
Circuit City Group shares. Net earnings per CarMax Group share rose
400 percent to 15 cents from 3 cents per share in last year's second quarter.
Net earnings for the CarMax Group rose 406 percent to $30.2 million in the
first six months of this fiscal year from $6.0 million in the same period last
year. The net earnings attributed to the CarMax Group stock were
$7.7 million, an increase of 439 percent from $1.4 million in the first half
of last year. The remainder of the CarMax Group's net earnings are attributed
to the Inter-Group Interest held by the Circuit City Group and thus to the
Circuit City Group shares. Net earnings per CarMax Group share rose
367 percent to 28 cents from 6 cents per share in the first six months of last
year.
Circuit City Stores, Inc.
Results for Circuit City Stores, Inc. include the total sales and earnings
for the company's Circuit City store business and the CarMax business. No
comparable store sales or earnings per share are reported for Circuit City
Stores, Inc.
Total sales for the second quarter ended August 31, 2000, increased
7 percent to $3.18 billion from $2.96 billion in the second quarter of last
fiscal year. Earnings from continuing operations were $59.5 million compared
with $74.5 million in last year's second quarter. Total sales for the
six months ended August 31, 2000, grew 11 percent to $6.25 billion from
$5.65 billion in the first six months of last year. Earnings from continuing
operations rose 3 percent to $120.1 million from $116.5 million in last year's
first half.
Discontinued Operations
In June 1999, the company's Digital Video Express business ceased
operations. The operating results of Divx and the loss on the disposal of the
Divx business were segregated from continuing operations and reported as
separate line items, after tax, on the company's and the Circuit City Group's
statements of operations for the six months ended August 31, 1999.
Discontinuation of the Divx business had no impact on the statements of
operations for the second quarters of either fiscal year or for the six months
ended August 31, 2000.
BUSINESS PERFORMANCE REVIEWS
Circuit City Group Review
"Sales growth in our consumer electronics business continues to be led by
new technologies and better featured products such as big-screen televisions,
digital cameras, DVD players, DVD software and wireless communications," said
W. Alan McCollough, president and chief executive officer of Circuit City
Stores, Inc. "Our exit from the appliance business continues to proceed as
planned, and as of the date of this release, we have eliminated the category
from approximately 225 stores and completed interim remodels of almost
170 stores, adding the expanded selections of computer software, peripherals,
accessories, video games, 35 mm cameras and portable audio products.
"During August, we opened the first store in our new consumer electronics
and home office-only design," McCollough said. "Consumer reaction has been
highly positive, and we look forward to completion of our remodels in central
and south Florida and the grand opening of 17 new stores with this design
before the holidays. The second store, in Albany, N.Y., opened today with
grand opening celebrations scheduled for later this week."
Circuit City's gross profit margin was 23.3 percent in this year's second
quarter compared with 25.0 percent in the same period last year. However,
excluding the appliance category, gross profit margins for the quarter were
26.1 percent this year compared with 25.8 percent in the same period last
year. "The weak sales and competitive pricing in the appliance category early
in the quarter followed by a $7 million impact from additional appliance
markdowns associated with our exit from that business later in the quarter
significantly reduced the gross profit margin," said McCollough. "The gross
margin for the major appliance category, excluding the $28.3 million in
one-time exit costs, was 13.3 percent in this year's second quarter compared
with 20.9 percent in the same period last year."
Gross Margin Components
Quarter Ended Six Months Ended
August 31, August 31,
2000 1999 2000 1999
Circuit City Store Business 24.7% 25.0% 24.5% 24.7%
Impact of Appliance Markdowns (0.3) -- (0.1) --
One-Time Appliance Exit Costs (1.1) -- (0.6) --
Gross Profit Margin 23.3% 25.0% 23.8% 24.7%
Gross Profit Margin
Excluding Appliances 26.1% 25.8% 25.3% 25.1%
"This year's second quarter expense ratio of 20.5 percent compared with
20.1 percent in the same period last year includes $8.3 million in remodeling
costs for the Florida stores and $1.7 million of one-time appliance exit
costs," said McCollough. "Excluding these costs, the expense ratio would have
been even with last year's ratio of 20.1 percent. This strong expense
management was achieved despite a lack of comparable store sales growth caused
by the significant weakness in the appliance business."
Expense Ratio Components
Quarter Ended Six Months Ended
August 31, August 31,
2000 1999 2000 1999
Circuit City Store Business 20.1% 20.1% 20.6% 20.8%
Florida Remodel Costs 0.3 -- 0.2 --
Appliance Exit Costs 0.1 -- -- --
Expense Ratio 20.5% 20.1% 20.8% 20.8%
Excluding the Florida remodel costs, merchandise markdowns costs, and
one-time costs of exiting the appliance business, this year's sales trends
resulted in a pretax margin of 4.6 percent in this year's second quarter
compared with 4.7 percent in the same period last year. Including all costs,
this year's second quarter pretax profit margin was 2.8 percent.
Net earnings related to the Circuit City Group's Inter-Group Interest in
the CarMax Group increased net earnings for the Circuit City Group by
$12.1 million in the second quarter of fiscal 2001 compared with $2.5 million
in the second quarter of fiscal 2000.
CarMax Group Review
"CarMax has produced an improved sales trend throughout the fiscal year,"
said W. Austin Ligon, president of CarMax. "The especially strong growth in
used cars, which is our predominant business and the more profitable of our
two categories, has enabled us to consistently increase our earnings
expectations. We believe that CarMax has developed a distinct offer in the
marketplace and that our focus over the past year on executing that offer in
our existing stores has been the primary contributor to our improved results.
We also believe that our enhanced Web site is generating significant increases
in consumer traffic for our store locations.
"The higher-than-anticipated sales for the used-car business and continued
improvements in inventory management produced a gross profit margin of
13.4 percent in this year's second quarter compared with 11.9 percent in the
same period last year," said Ligon. "Leverage from the sales growth, more
efficient advertising expenditures and the continued success of our hub and
satellite operating strategy led to a better expense ratio of 9.1 percent in
this year's second quarter compared with 10.4 percent in last year's second
quarter." CarMax's second quarter operating margin before interest and taxes
rose to 4.3 percent this year from 1.5 percent last year.
CarMax Group Operating Ratios
Quarter Ended Six Months Ended
August 31, August 31,
2000 1999 2000 1999
Net Sales and
Operating Revenues 100.0% 100.0% 100.0% 100.0%
Gross Profit Margin 13.4% 11.9% 13.5% 12.3%
SG & A Ratio 9.1% 10.4% 9.3% 10.9%
Operating Margin Before
Interest and Taxes 4.3% 1.5% 4.2% 1.4%
For the quarter, the CarMax business produced pretax earnings of
$26.2 million, a 403 percent increase from pretax earnings of $5.2 million in
last year's second quarter. The pretax profit margin was 3.9 percent this
year compared with 1.0 percent in the same period last year.
CIRCUIT CITY STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
PERIODS ENDED AUGUST 31
(Amounts in thousands except per share data)
Three Months Six Months
2000 1999 2000 1999
NET SALES AND
OPERATING
REVENUES $ 3,179,781 $ 2,958,394 $ 6,254,632 $ 5,649,376
Cost of sales,
buying and
warehousing 2,477,990 2,290,111 4,869,579 4,378,366
Appliance exit costs 28,326 -- 28,326 --
GROSS PROFIT 673,465 668,283 1,356,727 1,271,010
Selling, general and
administrative
expenses 572,298 542,913 1,151,504 1,072,494
Appliance exit costs 1,670 -- 1,670 --
Interest expense 3,583 5,262 9,804 10,594
EARNINGS FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 95,914 120,108 193,749 187,922
Provision for
income taxes 36,447 45,641 73,624 71,411
EARNINGS FROM
CONTINUING OPERATIONS 59,467 74,467 120,125 116,511
Discontinued operations:
Loss from discontinued
operations of Divx,
less income tax benefit -- -- -- (16,215)
Loss on disposal
of Divx, less income
tax benefit -- -- -- (114,025)
LOSS FROM DISCONTINUED
OPERATIONS -- -- -- (130,240)
NET EARNINGS
(LOSS) $ 59,467 $ 74,467 $ 120,125 $ (13,729)
Net earnings (loss)
attributed to:
Circuit City Group common stock:
Continuing
operations $ 55,341 $ 73,692 $ 112,464 $ 115,090
Discontinued
operations $ -- $ -- $ -- $ (130,240)
CarMax Group
common stock $ 4,126 $ 775 $ 7,661 $ 1,421
Weighted average common shares:
Circuit City
Group basic 203,770 201,315 203,318 200,890
Circuit City
Group diluted 205,494 204,551 205,686 204,011
CarMax Group basic 25,550 23,522 25,534 23,336
CarMax Group
diluted 26,956 25,673 26,937 25,571
NET EARNINGS (LOSS) PER SHARE:
Circuit City Group basic:
Continuing
operations $ 0.27 $ 0.37 $ 0.55 $ 0.57
Discontinued
operations $ -- $ -- $ -- $ (0.65)
Net earnings $ 0.27 $ 0.37 $ 0.55 $ (0.08)
Circuit City Group diluted:
Continuing
operations $ 0.27 $ 0.36 $ 0.55 $ 0.56
Discontinued
operations $ -- $ -- $ -- $ (0.64)
Net earnings $ 0.27 $ 0.36 $ 0.55 $ (0.08)
CarMax Group
basic $ 0.16 $ 0.03 $ 0.30 $ 0.06
CarMax Group
diluted $ 0.15 $ 0.03 $ 0.28 $ 0.06
CIRCUIT CITY STORES, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands)
August 31
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 432,700 $ 241,492
Net accounts receivable 614,540 556,168
Inventory 1,846,749 1,791,767
Prepaid expenses and other current assets 38,144 71,912
Total Current Assets 2,932,133 2,661,339
Property and equipment, net 954,960 1,005,894
Other assets 46,359 49,509
TOTAL ASSETS $ 3,933,452 $ 3,716,742
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt $ 132,318 $ 177,760
Accounts payable 1,017,295 1,041,555
Short-term debt 2,470 5,487
Accrued expenses and other current liabilities 164,252 141,093
Deferred income taxes 63,791 13,242
Total Current Liabilities 1,380,126 1,379,137
Long-term debt, excluding current installments 118,393 250,585
Deferred revenue and other liabilities 110,202 137,844
Deferred income taxes 18,689 28,263
TOTAL LIABILITIES 1,627,410 1,795,829
STOCKHOLDERS' EQUITY 2,306,042 1,920,913
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,933,452 $ 3,716,742
CIRCUIT CITY GROUP
STATEMENTS OF OPERATIONS -- PERIODS ENDED AUGUST 31 (Unaudited)
(Amounts in thousands except per share data)
Three Months Six Months
2000 1999 2000 1999
NET SALES AND
OPERATING
REVENUES $ 2,506,220 $ 2,422,667 $ 4,955,330 $ 4,627,586
Cost of sales,
buying and
warehousing 1,894,978 1,818,164 3,746,288 3,482,352
Appliance exit costs 28,326 -- 28,326 --
GROSS PROFIT 582,916 604,503 1,180,716 1,145,234
Selling, general
and administrative
expenses 510,950 486,995 1,030,712 960,672
Appliance exit costs 1,670 -- 1,670 --
Interest expense 625 2,615 3,318 6,264
EARNINGS FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES AND
INTER-GROUP INTEREST
IN THE CARMAX GROUP 69,671 114,893 145,016 178,298
Provision for
income taxes 26,475 43,659 55,106 67,753
EARNINGS FROM CONTINUING
OPERATIONS BEFORE
INTER-GROUP INTEREST IN
THE CARMAX GROUP 43,196 71,234 89,910 110,545
Net earnings related
to the Inter-Group
Interest in the
CarMax Group 12,145 2,458 22,554 4,545
EARNINGS FROM
CONTINUING OPERATIONS 55,341 73,692 112,464 115,090
Discontinued operations:
Loss from discontinued
operations of Divx,
less income tax benefit -- -- -- (16,215)
Loss on disposal of
Divx, less income
tax benefit -- -- -- (114,025)
LOSS FROM DISCONTINUED
OPERATIONS -- -- -- (130,240)
NET EARNINGS
(LOSS) $ 55,341 $ 73,692 $ 112,464 $ (15,150)
Weighted average common shares:
Basic 203,770 201,315 203,318 200,890
Diluted 205,494 204,551 205,686 204,011
NET EARNINGS (LOSS) PER SHARE:
Basic:
Continuing
operations $ 0.27 $ 0.37 $ 0.55 $ 0.57
Discontinued
operations $ -- $ -- $ -- $ (0.65)
Net earnings $ 0.27 $ 0.37 $ 0.55 $ (0.08)
Diluted:
Continuing
operations $ 0.27 $ 0.36 $ 0.55 $ 0.56
Discontinued
operations $ -- $ -- $ -- $ (0.64)
Net earnings $ 0.27 $ 0.36 $ 0.55 $ (0.08)
CIRCUIT CITY GROUP
BALANCE SHEETS (Unaudited)
(Amounts in thousands)
August 31
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 425,810 $ 205,782
Net accounts receivable 503,807 412,609
Merchandise inventory 1,559,146 1,505,745
Prepaid expenses and other current assets 35,125 70,885
Total Current Assets 2,523,888 2,195,021
Property and equipment, net 756,166 780,367
Inter-Group Interest in the CarMax Group 280,924 265,141
Other assets 9,605 8,944
TOTAL ASSETS $ 3,570,583 $ 3,249,473
LIABILITIES AND GROUP EQUITY
Current Liabilities:
Current installments of long-term debt $ 51,429 $ 73,047
Accounts payable 940,308 941,137
Short-term debt 957 1,035
Accrued expenses and other current liabilities 143,931 126,494
Deferred income taxes 53,059 4,983
Total Current Liabilities 1,189,684 1,146,696
Long-term debt, excluding current installments 54,632 110,854
Deferred revenue and other liabilities 103,105 131,787
Deferred income taxes 12,568 23,043
TOTAL LIABILITIES 1,359,989 1,412,380
GROUP EQUITY 2,210,594 1,837,093
TOTAL LIABILITIES AND GROUP EQUITY $ 3,570,583 $ 3,249,473
CARMAX GROUP
STATEMENTS OF EARNINGS (Unaudited)
PERIODS ENDED AUGUST 31
(Amounts in thousands except per share data)
Three Months Six Months
2000 1999 2000 1999
NET SALES AND
OPERATING
REVENUES $ 673,561 $ 535,727 $ 1,299,302 $ 1,021,790
Cost of sales 583,012 471,947 1,123,291 896,014
GROSS PROFIT 90,549 63,780 176,011 125,776
Selling, general
and administrative
expenses 61,348 55,918 120,792 111,822
Interest expense 2,958 2,647 6,486 4,330
EARNINGS BEFORE
INCOME TAXES 26,243 5,215 48,733 9,624
Provision for
income taxes 9,972 1,982 18,518 3,658
NET EARNINGS $ 16,271 $ 3,233 $ 30,215 $ 5,966
Net earnings attributed to:
Circuit City Group
common stock $ 12,145 $ 2,458 $ 22,554 $ 4,545
CarMax Group
common stock $ 4,126 $ 775 $ 7,661 $ 1,421
Weighted average common shares:
Basic 25,550 23,522 25,534 23,336
Diluted 26,956 25,673 26,937 25,571
NET EARNINGS PER SHARE:
Basic $ 0.16 $ 0.03 $ 0.30 $ 0.06
Diluted $ 0.15 $ 0.03 $ 0.28 $ 0.06
CARMAX GROUP
BALANCE SHEETS (Unaudited)
(Amounts in thousands)
August 31
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 6,890 $ 35,710
Net accounts receivable 110,733 143,559
Inventory 287,603 286,022
Prepaid expenses and other current assets 3,019 1,027
Total Current Assets 408,245 466,318
Property and equipment, net 198,794 225,527
Other assets 36,754 40,565
TOTAL ASSETS $ 643,793 $ 732,410
LIABILITIES AND GROUP EQUITY
Current Liabilities:
Current installments of long-term debt $ 80,889 $ 104,713
Accounts payable 76,987 100,418
Short-term debt 1,513 4,452
Accrued expenses and other current liabilities 20,321 14,599
Deferred income taxes 10,732 8,259
Total Current Liabilities 190,442 232,441
Long-term debt, excluding current installments 63,761 139,731
Deferred revenue and other liabilities 7,097 6,057
Deferred income taxes 6,121 5,220
TOTAL LIABILITIES 267,421 383,449
GROUP EQUITY 376,372 348,961
TOTAL LIABILITIES AND GROUP EQUITY $ 643,793 $ 732,410