Circuit City's Light Dimming Out - Q1 Earnings Preview

Thursday, June 19, 2008; Posted: 06:51 AM

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(RTTNews) - Consumer electronics retailer Circuit City Stores Inc. (CC | Quote | Chart | News | PowerRating) is scheduled to announce its first-quarter results before the market opens on Thursday. Circuit City's results will come under particular scrutiny, as the company is exploring strategic options, opening its books to movie rental firm Blockbuster Inc. (BBI | Quote | Chart | News | PowerRating) and billionaire investor Carl Icahn. Also, electronic retailers have been closely watched lately, as Wall Street tries to figure out how the consumer is holding up in the face of a weak economy and rising prices.

While announcing the fourth-quarter results in April, Circuit City said that it expects a pre-tax loss from continuing operations in the range of $180 million-$195 million for the first quarter, compared to a loss of $82.5 million in the prior-year quarter.

Meanwhile, analysts expect that the Richmond, Virginia-based retailer, which operates 682 superstores and 11 other stores in the U.S., selling branded and private-label consumer electronics products, will report a loss of $1.05 per share in the quarter, compared to a loss of $0.33 per share a year ago. Wall Street analysts also forecast a 4.7% decline in Circuit City's quarterly revenues to $2.37 billion.

For fiscal 2009, Circuit City forecasts an improvement of 50 basis points to 100 basis points in its pre-tax earnings from continuing operations as a percentage of consolidated net sales. The company also expects consolidated net sales to be relatively unchanged from last year.

Circuit City started its operations in 1949 as Wards Company, opening a store in Richmond, Virginia and since then, the company has continued to grow and acquire more stores in other locations. In 1984, the company officially changed its name to Circuit City and became listed on the New York Stock Exchange. However, in recent years, the company's early success with big-box stores has been eclipsed by other electronics retailers. The company is facing stiff competition from Wal-Mart and Costco Wholesale Corp. (COST | Quote | Chart | News | PowerRating) and its sales have been slowed down due to poor U.S. consumer spending on electronics and entertainment products in a challenging macro economic environment.

For the sequentially preceding quarter, Circuit City's revenue was down 7.7%, with comparable store sales declining 10.4%. The company's domestic segment reported an 8.8% decline in net sales as all its selling categories demonstrated meager sales performance. The only counterbalancing element was its international segment, which posted sales growth of 17.4%. Nonetheless, the company surprised analysts by reporting a profit of $4.85 million, or $0.03 per share, driven by its cost cutting measures as well as year-ago income tax expense.

Last year, Circuit City planned to close seven domestic Superstores and a Kentucky distribution center to cut costs and improve its financial performance. The company fired 3,400 of its highest-paid store employees to shore up its bottom line. There were also reports that the company will close 62 stores in Canada. The jobs cuts and other measures are expected to reduce the retailer's expenses by $140 million per year starting in fiscal 2009.

In February, Blockbuster had offered to acquire Circuit City for $6 to $8 a share. Last month, Circuit City reached an agreement with Blockbuster that allows Blockbuster and its largest shareholder Carl Icahn to conduct due diligence with respect to the takeover bid.

Circuit City has also entered into a deal with Wattles Capital Management, LLC, whereby Circuit City's board will select three of Wattles Capital's director nominees and include them as nominees of the board at the company's 2008 Annual Meeting. In addition, one of the Wattles Capital nominees will become a member of the executive committee of the Circuit City board. Wattles Capital, together with its affiliates, beneficially owns approximately 11 million shares of Circuit City common stock, representing nearly 6.5% of Circuit City's outstanding shares.

Meanwhile, industry experts are seem to be skeptical about the merger and its prospective, as both Circuit City and Blockbuster are struggling to turn a profit. They believe the merger will do little in solving either company's problems. In fact, putting the two businesses together could delay more useful restructuring, they noted. The analysts also said that the merger will eventually turn positive for Blockbuster's rival Netflix, which continues to focus on growing its subscriber base.

Circuit City's first-quarter results come close on the heels of earnings from its rival Best Buy, which announced its first-quarter results earlier this week. The Richfield, Minneapolis-based retailer's profit declined in the quarter, while per share earnings increased 10% on lower share count. Despite the weakness in consumer spending spree in the U.S., Best Buy's revenue rose 13%, aided by new store openings, a 3.7% increase in same-store sales and favorable foreign currency exchange fluctuations.

Best Buy also reaffirmed its fiscal 2009 earnings outlook range of $3.25 - $3.40 per share and revenue estimate range of $43 billion - $44 billion. Analysts estimate earnings of $3.27 per share, on revenues of $43.87 billion.

Shares of Circuit City closed Wednesday's trading at $4.05, down $0.25, on a volume of more than 3.6 million shares. The company's trading range for the 52-week period has been $3.44 - $16.27.

For full details on Circuit Cty Strs Inc (CC) click here. Circuit Cty Strs Inc (CC) has Short Term PowerRatings of 3. Details on Circuit Cty Strs Inc (CC) Short Term PowerRatings is available at This Link.

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