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Circuit City warns of loss

May 01, 2007|Leslie Earnest | Times Staff Writer

Competition to cut prices and sell more flat-screen and plasma televisions continues to ravage home-electronics chains.

On Monday, Circuit City Stores Inc., the nation's second-largest consumer electronics retailer, said it expected a pretax loss of as much as $90 million this quarter and revised its forecast for the first half of 2007.

The news sent the company's shares down more than 7% in after-hours trading.

Sales in April were "substantially below plan," the company said. "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," Chief Executive Philip J. Schoonover said in a statement.

The consumer electronics retail industry has been hammered by cutthroat competition.

Circuit City, which has been restructuring, said in February that it would close 70 stores and slash 200 jobs. Last month, it laid off 3,400 workers.

In March, CompUSA said it would shutter more than half of its 229 stores by the end of this month, including 21 of its 29 stores in California.

Although flat-screen televisions remain popular with consumers, Circuit City has been losing market share to competitors such as Best Buy Inc. and Wal-Mart Stores Inc., said analyst William Armstrong, with C.L. King & Associates.

"It's just further deterioration of trends that already had been weakening," he said. "In the fourth quarter they were not as sharp on pricing, and I think that's continuing."

And Circuit City's recent decision to dismiss many of its best-paid workers probably didn't help, Armstrong said. The retailer said the workers earned "well above" the local market rate for the types of jobs they held.

They would be allowed to apply for their previous positions after 11 weeks, the company said, so long as they were willing to accept lower hourly wages.

"They fired over 3,000 store employees and replaced them with new people," King said. "Obviously, in the near term, that's going to cause customer service to be not as good."

The Richmond, Va.-based company also said in a filing Monday that Schoonover, 47, received compensation valued at $17.1 million in the fiscal year ended Feb. 28, most of it from the value of stock and options that he received when he took the post in March 2006.

Schoonover's base salary was $894,615, according to the Securities and Exchange Commission filing. He also received $208,447 in other compensation, including $97,971 in use of the corporate aircraft and $50,000 for relocation expenses.

In its statement Monday, the company said it expected a pretax loss from continuing operations of $80 million to $90 million for its first quarter.

Circuit City's shares closed at $17.45 in regular trading Monday, down 48 cents, or 2.7%.

The Associated Press was used in compiling this report.

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