Circuit City 1Q loss widens, weak forecast

The nation's second largest electronics retailer also said it expects a bigger loss in the second quarter than analysts are expecting and said it is suspending its dividend to keep capital available for its turnaround efforts.

Earlier this week, its bigger rival Best Buy Co. Inc. said its first-quarter profit dropped 7 percent, beating Wall Street expectations.

Richmond, Va.-based Circuit City reported a loss of $164.8 million, or $1 per share, in the three months ended May 31 compared with a loss of $54.6 million, or 33 cents per share, a year ago. The company said revenue fell 7 percent to $2.30 billion from $2.49 billion. Same-store sales--stores open at least a year--dropped 11.3 percent.

Thomson Financial said analysts expected a loss of $1.06 per share on revenue of $2.37 billion.

Shares of Circuit City fell 7 cents, or 1.7 percent, to close at $3.98 Thursday. The stock has traded between $3.44 and $16.27 the past year.

"This is a quarter of steady progress," CEO Philip J. Schoonover said in a conference call with investors, adding that the company is seeing improvement in many of its operating performance measures. "We still have a long way to go, but I'm encouraged by what we've been able to accomplish."

Schoonover also said a review of strategic alternatives to boost shareholder value continues, but the board has not yet determined any course of action.

The company had opened its books last month to Blockbuster Inc. to allow the video-rental chain to conduct due diligence in its takeover bid of just over $1 billion with plans for creating a huge chain that would sell electronic gadgets and rent movies and games.

Schoonover said the company on Thursday filed a shelf registration statement with the Securities and Exchange Commission for possible issues of stock or debt securities in order to give Circuit City "greater flexibility to respond to strategic opportunities as they arise."

Despite suspending its dividend, the company said it believes it has adequate liquidity to fund the execution of its turnaround efforts, which remains a primary focus.

"We're building a new Circuit City that will be much stronger when economic headwinds subside," Schoonover said.

Circuit City said it expects a "gradual recovery" in the second half of fiscal 2009, and reaffirmed its outlook for the year of a mid-single digit decline in domestic comparable store sales.

The company also said it has implemented a team-based incentive program for the home entertainment department on June 1 to help capitalize on flat panel TV and related sales.

For the second quarter, the company expects a loss of $170 million to $185 million. Analysts expect a loss of $143.4 million.

In the first quarter, Circuit City's video sales saw a slight-double-digit decrease, with high single-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 first 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, and revenue from Firedog, the company's PC services and home-installation business, decreased 16 percent, Circuit City said. Internet- and call center-originated sales grew 3 percent.

On Tuesday, Best Buy said its first-quarter profit dropped to $179 million from $192 million.

Circuit City, which is holding its annual shareholder meeting next week, last month defused a proxy battle with Wattles Capital Management by agreeing to put three nominees from Wattles for the board up for election at the meeting. Because of that, the company is asking shareholders to expand its 12-member board by three seats.

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AP Business Writer Lauren Shepherd in New York contributed to this report.

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