Circuit City sees progress

DSN Retailing Today, July 5, 2004 by Laura Heller

RICHMOND, VA. -- Everything may not be coming up roses just yet for Circuit City, but the chain is beginning to see some fruits from three years of labor: remodeling stores, making operational changes and implementing new merchandising strategies.

"We've worked hard to build a new Circuit City," chairman and ceo Alan McCollough told attendees at the company's annual shareholder meeting. "We still have a long way to go, but we feel like we're seeing signs of progress."

Circuit City closed out its fiscal year (ended Feb. 29) with sales up 5% to $9.954 billion from $9.518 billion the previous year. It's the first top line increase for the chain since 2000, when it finished out the year with sales of $10.5 billion. Comp-store sales increased 4% for the year on top of a 10% decline the prior year. First quarter sales continue that trend, up 6.9% to $2.07 billion for the quarter ended May 31 and comp store sales up 6.4%.

It's been a full year since the chain transitioned to a non-commissioned sales force after more than 50 years of a commissioned sales structure and average sales per square foot have increased for the year to $491. This stems another decline since 2000, when Circuit City produced average sales per sq. ft. of $555. As of May 31, the retailer has relocated or fully remodeled 134 of its 600 stores, expects to open 60 to 70 new or relocated units this year and closed 19 under-performing stores in February in time for the end of its fiscal year.

"Close rates are improving, average tickets are up and our vendor relations are stronger," said McCollough. "The progress from last year was clearly significant."

But Circuit City's bottom line is still negative. The chain lost $787,000 from continuing operations in 2003, and the losses continued into the new year, with negative $5.3 million in first quarter earnings. But the losses are being stemmed, McCollough assured shareholders. "We clearly expect to make a profit this year," he said.

In addition to the store remodeling and relocation program, management is working to improve gross profit and to this end is expanding proprietary, higher margin offerings in just about every category and prompted the company's acquisition of InterTan earlier this year.

InterTan, once part of RadioShack, operates 980 stores in Canada under various names, including RadioShack, and although Circuit City plans to continue operating these units, the real benefits are expected to emigrate to its U.S. stores in the form of private label products and improved strategic sourcing.

The retailer plans to rollout 12 to 14 linear feet, or between 50 to 320 SKUs of new "cool gadgets" by the holiday season, according to Mark Smucker, merchandising manager, home theater solutions. The full selection will vary by store size and layout. Already, the inclusion of InterTan from May 12 to May 31 has contributed 18 basis points to 2004's first quarter gross profit margin, according to company filings.

"Momentum will continue to build," said McCollough. "There will be no attempts at shortcuts, no quick fixes. We will run our business for the long haul."

CIRCIUT CITY
(CC)
2003 EPS by quarter

1Q   -0.14
2Q   -0.19
3Q    0.14
4Q    0.46

Note: Table made from bar graph.