Cost-Cutting Helps Circuit City Report a 4Q Profit Despite Lower Sales

RICHMOND, Va. (AP) -- The crucial holiday-shopping season didn't bring much cheer to Circuit City Stores Inc., but its cost cutting efforts helped the struggling electronics retailer swing a profit for its fiscal fourth quarter.

The nation's second biggest electronics retailer hadn't seen a quarterly profit since the second quarter of 2007 and analysts had been expecting a loss for the December-February period.

Circuit City, which is facing pressure from an activist shareholder seeking improved profitability, said it earned $4.85 million, or 3 cents per share, in the three months ended Feb. 29 versus a loss of $4.25 million, or 3 cents per share, a year earlier. Analysts polled by Thomson Financial predicted a loss of 7 cents per share and Circuit City forecast a modest loss.

Its shares fell 36 cents to close at $4.17 on Wednesday after trading as high as $5.05 earlier in the day. The stock has traded between $3.44 and $19.12 during the past year.

Despite a disappointing fiscal year 2008, Philip J. Schoonover, Circuit City's chief executive told investors in a conference call that the fourth quarter showed progress.

"We remain confident that we are on the right track," Schoonover said. "We are implementing the right strategies with the right talent and processes to lead us to a successful turnaround and position us for long-term profitable growth."

The company said it achieved approximately $65 million in reduced costs and expenses in the quarter from ongoing changes in its structure.

That more than offset an 8 percent year-over-year decline in revenue to $3.65 billion. Analysts expected revenue of $3.79 billion. Same-store sales, or sales in stores open at least one year, fell 10.4 percent.

Last week, bigger rival Best Buy Co. Inc. reported earnings of $737 million for its fourth quarter, a 3 percent drop from the previous year.

For the full year, Circuit City lost $319.9 million, or $1.95 per share, compared to a loss of $8.3 million, or 6 cents per share, during the prior year. Revenue fell to $11.7 billion from $12.4 billion a year earlier. For the year, Circuit City saved $200 million from the cost cutting changes.

Circuit City projected that 2009 consolidated net sales will remain relatively unchanged compared with the prior year. For the first quarter, the company expects $180 million to $195 million in losses from continuing operations before taxes, due to weak operating trends.

Wattles Capital Management, which owns a 6.5 percent stake in the company, wants to oust Schoonover and Circuit City's board of directors.

Mark J. Wattles has said turnaround efforts under Schoonover have been "disastrous" and he should be replaced. He also suggested other changes to help "unlock hundreds of millions of value in the near term and billions of value in the long term."

Wattles, founder of the Hollywood Entertainment video-rental chain, wants to kick out all of Circuit City's 12-member board and nominate five directors. The owner of the 32-store Ultimate Electronics chain also said that Circuit City should hire an investment bank to evaluate any possibility for a takeover offer.

The proposals, if accepted, would be aired during Circuit City's annual meeting in June.

Schoonover said the company plans to focus on improving its selling culture and sales of warranties and installation services as it continues its turnaround efforts, which include its new smaller concept stores called "The City."

"It's taken longer than expected and it was more difficult than we expected but we have fundamentally changed the way we run the stores," Schoonover said.

While results were weak, they "could have been worse," Banc of America Securities analyst David Strasser wrote in a note to investors.

"They still have a lot of work ahead of them," Strasser wrote.

In the fourth quarter, Circuit City's video sales saw a low-double-digit decrease, with double-digit sales growth in flat-screen televisions unable to offset significant sales decreases in tube and projection televisions. Sales of camcorders and DVD hardware fell by double digits.

Sales of information-technology products fell by high single-digits in the fourth quarter, as sales of notebook computers grew and sales of desktop computers continued to decline.

Sales of extended warranties fell about 32 percent in the quarter, but revenue from Firedog, the company's PC services and home-installation business, increased 11 percent, Circuit City said. Internet- and call center-originated sales grew 14 percent.

Circuit City: http://www.circuitcity.com

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