Markets & Finance

TV Troubles for Circuit City


Shares of the electronics retailer fell Monday after it said results will be hurt by lower sales of flat-panel screens

Circuit City Stores (ticker symbol="CC" primary="true" />) shares fell on May 1, after the consumer electronics giant warned of losses ahead and changed its take on earnings. The Richmond, Va.-based company has announced lay-offs recently as it continues struggling against cut-throat competition.

Expressing disappointment in April sales related to its flat panel television business, Circuit City now expects to have a loss from continuing operations before income taxes of $80 million to $90 million during the first quarter of fiscal 2008.

Circuit City also withdrew its previously issued guidance for the first half of the year. The company had anticipated a pretax loss of $40 million to $50 million in the first half of fiscal 2008, according to the Associated Press.

"Although the first half of the fiscal year will be volatile due to the change in the television business, we believe that our transformation efforts will yield positive results for the full fiscal year," said CEO Philip J. Schoonover in a press release Apr. 30.

After the news investors sold Circuit City shares more than 5% to a $16.52 per share closing price in NYSE trading on May 1. The stock hit a 52-week low of $15.31 earlier in the session. Trading volume was more than four times the three-month daily average, according to Yahoo Finance.

Circuit City had said Mar. 28 that it's planning to lay off around 3,400 store employees - but only to hire again at lower wages. The consumer electronics retailer will also outsource its information technology department and possibly sell its Canadian unit InterTAN, in an effort to manage costs and survive better in its battles against rivals.

"We believe the weakness in TV sales at CC has been exacerbated by its recent decision to lay off 3,400 store workers, and we expect Best Buy (BBY) to continue to post fairly strong results in this important category," Standard & Poor's equity analyst Michael Souers said in a research note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.) Souers cut his earnings per share estimates for the fiscal year ended Feb. 2008 and 2009 to 60 cents and 94 cents, from 83 cents and $1.03, respectively. He also moved his target price down by $2 to $20 per share.

To reflect vendor allowances, Circuit City revised its financial results for the fiscal year 2007 to an $8.3 million loss from the originally reported $11.8 million loss. Meanwhile Circuit City also changed its third and fourth quarter results, effectively moving $4.5 million of revenue related to Web-originated sales that had been recognized in the third quarter into the fourth. Now, during the third quarter ended Nov. 30 the company says it lost $20.4 million and during the fourth quarter ended Feb. 28 Circuit City lost $4.3 million.

CEO Schoonover has had it rough during recent months. Consumer electronics retailers have been frantically trying to beat each other to customers by slashing their prices on things like flat panel TVs, effectively crimping the entire industry's ability to make money. At the same time, Schoonover has been spending on putting new services into place that rivals like Best Buy already have; for example, Circuit City worked on a plan with the computer giant IBM last year that was intended to update the retailer's technology for things tracking and managing sales, inventory and customer information.

Now it looks like things could end up even tougher to predict than Schoonover thought.


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