Circuit City Reports Narrower Loss; Stock Jumps

Circuit City Stores Inc. (CC) on Friday reported a narrower quarterly loss as it kept a tight rein on expenses and sales of digital televisions and notebook computers rose, sending its stock up 4 percent.

The No. 2 U.S. consumer electronics chain, which has been losing market share to larger rival Best Buy Co. Inc. (BBY) for three years, said sales of high-profit warranty plans also boosted results.

Its loss from continuing operations narrowed to $11.4 million, or 6 cents a share, in the second quarter ended Aug. 31, from $39.3 million, or 19 cents, a year earlier.

The company said results from recently acquired InterTan (search), a Canadian consumer electronics retailer, added $3.4 million, or 2 cents a share, to the latest results.

Circuit City, based in Richmond, Va., was expected to report a loss of 11 cents a share, according to Reuters Estimates.

Chief Executive Alan McCollough said store operations continued to improve. The retailer is relocating stores from underperforming locations and improving customer service in a drive to capture holiday shopper traffic.

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Scot Ciccarelli, an analyst at RBC Capital Markets, said the quarterly results were a sign of progress at Circuit City but said more work still lay ahead as the gap between the company and Best Buy continues to widen.

"Circuit City beat on the bottom line, and most of that was driven by gross margins," he said. "If you can carry that forward into the following quarters, then there could be more upside to the earnings in the back half of the year as well. They continue to make progress."

McCollough said strong sales of warranty plans, which help customers replace or repair merchandise, boosted gross margins in the second quarter.

He also said 48 stores that have been relocated are generating "attractive returns." Poor store location is among the company's problems often cited by analysts. Circuit City would have to relocate a third of its 609 stores to catch up with Best Buy, which has many stores near high-traffic areas like major highways, according to analysts.

For the current quarter, ending Nov. 30, Circuit City said store remodeling and relocation expenses could total $17 million. For the year, such expenses could total $47 million.

It said it plans to open about 30 stores in the third quarter and about 16 in the fourth quarter.

Its goal is for 60 new stores this year; slightly less than half of the total would consist of relocated outlets.

As reported on Sept. 7, second-quarter sales rose 8.9 percent to $2.35 billion. Sales at stores open at least a year, a key gauge of retail performance, rose 2.9 percent, helping to offset a rise in advertising expenses.