This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Circuit City Stores, Inc. (CC) on April 04, 2007.
Key Investors Issues
- Net loss was 7 cents per share compared to a profit of 81 cents per share a year ago.
- Sales increased to $3.93 billion from $3.89 billion a year earlier.
- The company bought back 5 million shares for $100 million.
Fourth Quarter Highlights
Results for the fourth quarter and fiscal year include $145 million in pre-tax charges associated with the previously announced impairment of goodwill storing facility closures and other restructuring activities as well as classification.
Excluding these charges and the classification, earnings from continuing operations before income taxes or EBT would have been 1.3% of sales which was within fiscal 2007 guidance of 1.2% to 1.4%.
The company increased its consumer electronics market share compared with last year according to track line data.
The company reached $1 billion in web originated sales, growing more than 50% for the year.
- Though the company continues to see strong double digit growth in advanced TVs, it also saw acceleration of decline in the sales of tube and projection TVs which more than offset this growth in flat panel.
Some of the key points on acceleration plan include:
- Reorganizing and streamlining the senior leadership team around delivering a seamless multi-channel customer experience.
- Instituting new retail standard operating procedure to better the age and free up associates to serve customers including new tools and training.
- Better leveraging the basket opportunity in store, on the web, and in call centers.
- Optimizing assortments and improving direct sourcing efforts.
- Re-engineering supply chain to increase customer encountered in-stock while reducing the company’s net owned inventory.
- Continuing to build out strategy with services platform for firedog.
- Closing underperforming stores in the U.S.
- Outsourcing IT infrastructure operation to IBM.
The benefits of this action will be three fold.
- It will reduce planned infrastructure cost by approximately 16% over the life of the contract.
- The company will get some incremental financial benefits related to retail point of sale and merchandising system transformation with this IBM out sourcing.
- IBM will provide additional strategic support to assist transformation effort.
Combined the company will have a lower total cost of ownership while receiving high quality execution and global practice insight from IBM. The goal to drive more competitive SG&A rate will allow gaining profitability while investing in areas to grow.
In the last two years, the company has improved index of associate engagement in stores by 11 percentage points.
Most recent survey shows an all-time high in-store level engagement. Higher levels engagement has been statistically proven by third party studies to drive increased levels of productivity.
Net sales increased more than 1% to $3.93 billion.
- Domestic segment sales grew more than 1% due to a net increase of 16 Superstores in the last year partially offset by a 0.5% decline in comparable store sales.
- International segment sales declined 0.5%.
- A decline of 1% due to fluctuation in foreign currency exchange rates was partially offset by comparable store sales increase of 0.3% in the local currency.
- Consolidated gross margin declined 89 basis points from last year.
- Domestic gross margin declined 45 basis points driven by the decrease in extended warranty net sales as a percent of net sales.
International segment growth margin declined by 11 percentage points and impacted the consolidated gross margin by 49 basis points.
195 basis points of the decline resulted from inventory write-offs associated with the plans with certain product lines since February and other actions to align international segment merchandise assortment with consumer demand. About 500 basis points of the decline resulted from inventory and markdowns. The margin rate was also impacted negatively by the continued shift from higher margin categories such as toys and batteries to lower margin categories such as personal electronics and EPS devices.
