Circuit City Stores Reports Q3 Results For the Company
6 December 2000
Circuit City Stores, Inc. Reports Third Quarter Results For the Company, the Circuit City Group and the CarMax Group
Announces Change in Expectations for the Circuit City Group
RICHMOND, Va., Dec. 6 Circuit City Stores, Inc. today
reported sales for the third quarter ended November 30, 2000, for the company,
the Circuit City Group and the CarMax Group , and
increased its loss expectations for the Circuit City Group, citing
lower-than-anticipated gross margins and sales and higher costs associated
with full store remodels in Florida.
THIRD QUARTER SALES
Circuit City Stores, Inc.: For the quarter, total sales for Circuit City
Stores, Inc. declined 3 percent to $2.88 billion from $2.98 billion in the
third quarter of last year.
Circuit City Group: Total sales for the Circuit City Group declined
7 percent for the quarter to $2.32 billion from $2.50 billion in last year's
third quarter. Comparable store sales declined 10 percent.
Excluding stores in central and south Florida, where remodels were
completed late in the quarter, comparable store sales declined 9 percent.
Excluding the appliance category, which the company exited during the quarter,
comparable store sales rose 3 percent.
CarMax Group: For the CarMax Group, total sales for the quarter ended
November 30, 2000, rose 15 percent to $561.5 million from $489.0 million in
the same period last year. Comparable store sales rose 11 percent.
CIRCUIT CITY GROUP REVIEW
"On the Friday after Thanksgiving, we produced the highest sales volumes
we have ever produced in a single day, and the weekend was our highest volume
weekend ever," said W. Alan McCollough, president and chief executive officer
of Circuit City Stores, Inc. "We continue to generate double-digit or higher
comparable store sales growth in better-featured products and new
technologies, such as big-screen televisions, including digital-ready
televisions; DVD players; digital cameras; and personal computer companions.
Our new and expanded product selections, including DVD software, video games
and personal computer software and peripherals, produced exceptionally strong
growth and helped generate positive comparable store sales growth, despite the
absence of the appliance business, over the holiday weekend.
"Nevertheless, gross profit margins and sales were below our expectations
across most categories for the quarter," said McCollough. "Pricing was
especially promotional over the holiday weekend, and consumers were attracted
to the lower margin products. In addition, continued declines in average
retails for the traditional analog products, while producing great values for
the consumer, make it challenging to generate comparable store sales growth in
these segments.
"Remodeling costs for the full remodels, which are primarily located in
central and south Florida, exceeded our expectations," said McCollough. "The
higher-than-expected costs reflect changes made to the design during the
remodeling process, the complexity of completing this first group of remodels
and our desire to complete them prior to Thanksgiving," said McCollough.
"We now anticipate that our Circuit City business will produce a loss in
the range of 33 cents per share to 35 cents per share for the quarter," said
McCollough. This range includes the following estimated non-recurring costs
associated with store remodeling and the exit from the appliance business:
Estimated EPS Impact
Full Remodels (0.10)
Partial Remodels (0.09)
Appliance Merchandise Markdowns (0.06)
Sales Disruption (0.03)
Excluding these costs, the expected third quarter loss per share for the
Circuit City business would be in the range of 5 cents to 7 cents.
"The fully remodeled stores now have been complete for approximately
two weeks. As we progress through December, we are measuring the sales impact
of both the partial and full remodels, determining which components generate
the greatest sales and profit contribution and examining ways to reduce
remodeling costs and sales disruption," said McCollough. "Next year's
remodeling plans will be based on this analysis. Our objective remains
two-fold: to create an outstanding shopping environment that also produces a
high return on investment for Circuit City shareholders."
The earnings for the Circuit City Group will include the loss from the
Circuit City business and an expected contribution of approximately 2 cents
per share from the Group's retained interest in the CarMax Group. As a
result, the company expects a loss per share for the Circuit City Group in the
range of 31 cents to 33 cents, including the costs associated with remodeling,
the estimated sales disruption related to partial remodels and the merchandise
markdowns associated with the exit from the appliance business, and a loss per
share in the 3 cents to 5 cents range, excluding these costs.
Circuit City has updated its product category breakdowns to reflect the
changes in its product selections that have occurred in recent years and are
expected to continue occurring during the current decade. Prior years and
quarters are being restated for consistency. Sales by merchandise categories
for this year and last year are shown below:
Percent Merchandise Sales by Category
1st Quarter 2nd Quarter 3rd Quarter Nine Months
ended May 31 ended August 31 ended Nov. 30 ended Nov. 30
2000 1999 2000 1999 2000 1999 2000 1999
Video 32% 32% 32% 29% 37% 32% 34% 31%
Audio 15% 16% 15% 15% 16% 15% 15% 15%
Information
Technology 34% 31% 34% 33% 37% 34% 35% 33%
Entertain-
ment 5% 5% 5% 5% 8% 5% 6% 5%
Appliances 14% 16% 14% 18% 2% 14% 10% 16%
Total 100% 100% 100% 100% 100% 100% 100% 100%
During the quarter, Circuit City opened 17 stores and completed remodels
of 26 stores to reflect its newest design. These stores feature greater
display space for all consumer electronics and home office products and easy
accessibility to products, with virtually all merchandise on the sales floor,
brighter lighting, wider aisles and shopping carts, all of which make it more
inviting for the customer to browse. The company also completed partial
remodels to increase selection in 539 stores in time for this year's holiday
season, with plans to expand its full remodel program to more stores in the
coming fiscal year.
"In our stores, we have completed our exit from the major appliance
business so that this year's holiday shoppers will find greater selections of
computer software, peripherals and accessories, video games and entertainment
software," said McCollough. "Equally important, they will find a shopping
experience that provides information on new technologies and easily accessible
products if they want to browse and select their purchases on their own."
CARMAX GROUP REVIEW
"Our 11 percent comparable store sales increase made this fall quarter one
of the best ever for CarMax. We were particularly pleased that, as previously
announced, our core used-car business continued to perform strongly throughout
the quarter despite the industry-wide slowdown in new-car sales," said W.
Austin Ligon, president of CarMax. "We also have managed our used-car
inventory during the model-year changeover in the new-car segment to
significantly reduce the gross margin erosion that has occurred in prior
years. This inventory management, combined with the overall higher gross
margins on used cars relative to new cars, led us to raise our earnings
expectations in mid-November." For the quarter ended November 30, 2000,
CarMax expects net earnings per CarMax Group share in the range of 5 cents to
6 cents.
The percent of vehicle sales represented by each category for the third
quarter and the nine months is as follows:
Percent Vehicle Sales by Category
3rd Quarter Nine Months
Ended November 30 Ended November 30
2000 1999 2000 1999
Vehicle Dollars:
Used Vehicles 81% 78% 80% 79%
New Vehicles 19% 22% 20% 21%
Total 100% 100% 100% 100%
Vehicle Units:
Used Vehicles 87% 86% 86% 86%
New Vehicles 13% 14% 14% 14%
Total 100% 100% 100% 100%
Circuit City expects to release third quarter earnings for the company,
the Circuit City Group and the CarMax Group on December 18, 2000.