Circuit City Inc. earnings down 23% for second quarter Company attributes drop to costs for promotions, low electronics demand

September 17, 1996|By BLOOMBERG BUSINESS NEWS

RICHMOND, Va. -- Circuit City Stores Inc. said yesterday that its fiscal second-quarter earnings fell 23 percent because of spending on special promotions and less demand for consumer electronics.

Net income fell to $31.6 million, or 32 cents a share, in the quarter ended Aug. 31, from $41.2 million, or 42 cents, in the year-earlier period.

Wall Street expected the nation's largest electronics retailer to earn 30 cents a share, according to 17 analysts polled by IBES International Inc.

Sales rose 10 percent to $1.77 billion, from $1.60 billion in the year-earlier period, on sales of major appliances, the company said. Same-store sales, or sales at stores open at least a year, fell 7 percent.

Earnings at Circuit City have been falling all year, because of slowing demand for electronics and a price war driven by archrival Best Buy Co. Circuit City's earnings fell in each of the last three quarters.

"It looks like Best Buy is backing off a tiny bit, but not very much," said Ed Weller, an analyst with Robertson Stephens. "It's still a fairly promotional environment."

The stock rose 11 percent in the past seven trading days amid investor optimism that future quarters will look better in comparison to year-earlier results. Shares rose 62.5 cents to $35 in trading of 549,400, far above the three-month daily average of 432,100.

"This sales decline for electronics started last fall and we have just about made a full cycle, so the comparisons will be much easier and earnings will look better," said Don Trott, an analyst with Dean Witter Reynolds.

Circuit City said its major appliance sales remained strong in the second quarter, except for air conditioners.

Promotions narrowed the company's gross profit margin to 22.4 percent, from 23 percent in the year-earlier period.

An increased amount of revenue from the company's CarMax used-car unit, which has lower profit margins, also contributed to the narrowing profit margin, Circuit City said.

Circuit City operates 393 electronics superstores, five consumer electronics-only stores, 41 mall-based Circuit City Express stores and five CarMax Superstores.

Pub Date: 9/17/96

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