Circuit City Posts Losses on Poor TV Sales

Consumer electronics retailer Circuit City Stores Inc. (CC) Wednesday posted a worse-than-expected quarterly loss and withdrew its earnings forecast, citing a drop in television sales and an uncertain economic environment.

Circuit City's results suffered from similar weaknesses reported by larger rival Best Buy Co. Inc. (BBY) Tuesday, casting new doubts on U.S. consumer spending trends and sending both their shares lower.

Circuit City shares slipped 4 cents to $16.03 in early trading after dropping 3 percent on Tuesday. Analysts said investors had already taken into account the retailer's woes based on Best Buy's report.

"Circuit City is clearly struggling with the challenging consumer electronics environment and is, characteristically, executing less well than Best Buy," Bernstein analyst Colin McGranahan said in a client note.

The company reported a loss of $54.6 million, or 33 cents a share, for the first quarter ended May 31, compared with year-earlier net income of $6.4 million, or 4 cents per share.

Analysts on average had been expecting a loss of 32 cents a share, according to Reuters Estimates.

Net sales declined 4.3 percent to $2.49 billion from $2.6 billion a year ago, but still exceeded analysts' forecasts of $2.44 billion.

The company said its profit margins had declined as lower-margin personal computers made up a higher proportion of sales.

Total television comparable-store sales decreased sharply as a significant drop in projection and traditional tube models more than offset growth in flat-panel sets.

The company said it could not predict when the market would improve and withdrew previous earnings forecasts.

"Combined with an uncertain macroeconomic environment, for the time being, it is difficult to project sales and earnings performance for the balance of the fiscal year," Chief Executive Philip Schoonover said in a statement.

Circuit City, which has about 46,000 employees, is in the midst of a multiyear effort to overhaul its business after losing market share to Best Buy and facing competition from discounters such as Wal-Mart Stores Inc. (WMT).

Wal-Mart, the world's largest retailer, has been pursuing electronics aggressively, expanding its selection of high-end products like flat-panel TVs to lure customers into its stores and then cutting prices to boost sales and gain market share.

Last month, Circuit City said it planned to shift some 640 store managers and trim its headquarters staff by about 200 people, the latest step in its turnaround plan.

That comes on the heels of its announcement earlier this year that it would close stores and replace 3,400 employees with lower-paid workers.

The company said on Wednesday that some of these changes led to "significant volatility" that is likely to continue for several months.

Circuit City shares have fallen about 15 percent so far this year. That compares with an 8 percent decline for Best Buy shares and an 8 percent rise in the S&P 500 index.