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Circuit City Reports Larger 3Q Profit
Monday December 19, 10:04 am ET
By Stephanie Stoughton, AP Business Writer
Circuit City Reports Larger-Than-Expected Profit in Third Quarter, Boosts Revenue Guidance

RICHMOND, Va. (AP) -- Circuit City Stores Inc. surprised Wall Street by reporting another larger-than-expected quarterly profit on Monday -- perhaps signaling that a long-awaited turnaround at the nation's second biggest chain of consumer electronics stores has taken hold.

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Its shares rose nearly 8 percent in early trading as it also boosted its revenue guidance for the fiscal year.

With the company's future looking brighter, Chief Executive Officer W. Alan McCollough on Monday announced his plans to retire next year. He will leave Circuit City in the hands of President Philip J. Schoonover, a former executive with Best Buy Co. Inc., Circuit City's bigger rival.

Richmond-based Circuit City earned $10.1 million, or 6 cents a share, in its fiscal third quarter ended Nov. 30, beating the 4-cents-a-share estimate of analysts surveyed by Thomson Financial. In the year-earlier period, the company lost $5.9 million, or 3 cents a share.

Sales in the quarter rose 15 percent to $2.91 billion from $2.53 billion in the year-ago period. Domestic same-store sales, or sales at locations open at least a year, rose 13.3 percent.

Circuit City also beat Wall Street's forecast in the second quarter by eking out a small profit instead of a loss.

Also Monday, Circuit City raised its revenue guidance this fiscal year. The company now anticipates total sales growth between 8 percent and 10 percent, compared to its previous guidance of 5 percent to 8 percent.

Circuit City said domestic same-store sales growth will be in the mid- to upper-single digit range, compared to its prior expectation of growth in the low- to mid-single digit range.

McCollough said the third quarter's improvements followed continuing improvements in the company's business. Circuit City has been relocating stores, improving its merchandising and sharpening its focus in a bid to make up ground lost to Best Buy, Wal-Mart Stores Inc. and others.

"During the quarter, we continued to build upon the traction that began in the second quarter on our parallel efforts to upgrade, evolve and innovate our business," McCollough said.

Meantime, it was Best Buy that recently had some investors running for cover. Last Tuesday, the Minneapolis-based retailer said it third-quarter profit fell 7 percent to $138 million, or 28 cents a share, while analysts had predicted earnings of 30 cents a share.

But analysts have cautioned that Circuit City has a long way to go before it can catch up to the much-larger Best Buy.

Circuit City shares rose $1.69 to $22.94 in morning trading on the New York Stock Exchange, while Best Buy shares slipped 16 cents to $44.80.

Circuit City's sales growth came as it boosted the average ticket, because store traffic in the quarter was relatively flat.

McCollough said the company saw "impressive" gains at its Internet site, particularly on the day after Thanksgiving. Sales of flat-panel televisions continued to grow, as did revenue from portable digital audio products, notebook computers and digital imaging items.

In a separate announcement, Circuit City said McCollough, 56, will retire as chief executive on Feb. 28 and as chairman of the board of directors in June. There has been no decision on who will lead the board.

At a meeting Saturday of Circuit City's board, Schoonover was unanimously elected to the board and named CEO effective March 1.

Schoonover, 45 and a former Best Buy executive, was seen as McCollough's heir. At Best Buy, he was one of the top managers in charge of the retailer's "customer centricity" drive, which targeted specific consumer groups.

Circuit City hired Schoonover as chief merchandising officer in October 2004 and named him president in February.

James F. Hardymon, a Circuit City director, said McCollough steered the company through the rebuilding process.

"During his tenure as chief executive officer, he orchestrated the transformation of the company's senior management team -- a team that has already demonstrated its strong capabilities and intense desire to win, and he has made the difficult decisions necessary to turn around a company in a tough competitive market," Hardymon said.

Hardymon said that the board is excited about Schoonover's promotion. "He combines exceptional experience in the consumer electronics industry with strong vision and great leadership skills."

For the first nine months of the year, Circuit City lost $1.6 million, or 1 cent a share, compared to a loss of $23.8 million, or 12 cents a share, in the year-earlier period. Sales rose 10 percent to $7.70 billion from $7.00 billion.