Circuit City to cut 2,000 jobs
RICHMOND, Va. (Feb. 5) - Circuit City Stores Inc., the No. 2 electronics chain, Wednesday warned of a shortfall in quarterly earnings, and said it would cut 2,000 jobs or about 5 percent of its work force at a cost of $16 million to boost profits.
The chain, which ranks behind industry leader Best Buy Co. Inc., also said it will pay all store staff by the hour and end sales commissions as of Thursday -- a step one analyst said could hurt morale and sales.
Circuit City shares slumped to a 12-year low of $5.78, before ending 73 cents, or 11.08 percent, lower at $5.86 on the New York Stock Exchange.
Circuit City, along with its peers, is hurting as consumers hold back on spending amid worries about an Iraq war, unemployment and sluggish economic growth.
The retailer forecast fourth-quarter profit of 21 cents to 26 cents a share. Excluding one-time items, its estimates range from 35 cents to 40 cents a share, below the Thomson First Call consensus of 47 cents a share.
In January same-store sales, at outlets open at least a year, fell 2 percent from a year earlier, Circuit City Chairman, President and Chief Executive Officer Alan McCollough said in a conference call with analysts. Despite soft sales overall, demand for digital TVs, movie and video game software sales was holding up, he added.
The retailer said the new pay structure would save about $130 million in the year starting March 1. However, the change would also lower pretax profit for the year ending Feb. 28 by about $40 million, after severance and other one-time costs, and an expected disruption in sales, it said.
Circuit City said 1,800 jobs would be cut from its 626 stores across the United States, and its service center work force would be reduced by 200. The Richmond, Virginia-based company has 42,000 employees, of which about 16 percent are paid sales commissions, a company spokesman said.
Circuit City, which has struggled to reinvent itself since it stopped selling home appliances two years ago, also said it will spend as much as $150 million in the coming fiscal year to relocate up to 22 stores and remodel about another 200.
MOVING IN RIGHT DIRECTION?
Colin McGranahan, a Sanford Bernstein analyst, said the payroll changes and store overhauls were ''steps in the right direction'' that could help Circuit City compete effectively.
But Alan Rifkin, an analyst at Lehman Brothers, said low staff morale as a result of pay cuts could disrupt selling and customer service in the near term.
''It's quite possible that the top (Circuit City) sales people will be disenchanted as they see their net pay decline on an annual basis,'' he said. He added that Circuit City needed to close as many as 75 stores, a step the retailer said it was not contemplating.
CEO McCollough said Circuit City's latest store remodeling would involve standardizing fixtures and making merchandise easily accessible to customers.
Circuit City, which has spent about $70 million on store revamps over the past two years, recently finished upgrading lighting and moving video products into prominent areas at 301 stores.
''Beyond fiscal 2004, we expect to continue incurring costs, especially for relocations and remodels,'' the retailer said. But it noted that customer service initiatives and savings from the new pay structure should help soften the blow.
Circuit City and rival Best Buy's market turf is getting crowded as mass merchants like Wal-Mart Stores Inc. and Costco Wholesale Corp. are luring shoppers with cheap DVD players, movies and stereos.
Reut16:06 02-05-03
AI
