- Domestic segment gross profit margin decreased 204 basis points from the prior year, impacting the consolidated gross profit margin decline by 197 basis points, driven by a decrease in domestic segment extended warranty net sales as well as lower merchandise margins that were driven by a greater mix of lower-margin PC hardware sales.
- The greater mix of PC hardware sales reflects both strength in that business as well as below-plan sales in the television category.
- The international segment''s first quarter gross profit margin decline of 22 basis points did not materially impact the consolidated gross profit margin. The decrease resulted primarily from a mix shift from higher-margin categories.

The selling, general and administrative (SG&A) expenses were 26.1% of consolidated net sales in the quarter, compared with 24.4% of consolidated net sales in the same a year ago.

- The domestic segment contributed 201 basis points to the 166 basis point increase in the consolidated expense-to-sales ratio.
- The domestic segment''s increase reflects about 90 basis points in net incremental expenses, related to investments in information technology, multi-channel capabilities and innovation activities, as a percentage of consolidated net sales, as well as the overall de-leveraging impact of lower sales.
- The segment incurred general and administrative expenses of $4.9 million, or 20 basis points as a percentage of consolidated net sales, associated with severance from restructuring activities.
- The international segment''s decline in expenses partially offset the increase in the consolidated expense-to-sales ratio, as the segment''s SG&A expenses as a percentage of segment net sales decreased 900 basis points, primarily due to a $7.5 million recovery related to a former subsidiary.

- The net loss from continuing operations totaled $54.8 million, or 33 cents per diluted share, compared with net earnings of $5.3 million, or 3 cents per diluted share a year ago.

By end of the quarter, the cash, cash equivalents and short-term investments were $364 million, compared with $634 million in the year earlier period.

- The $270 million year-over-year decline in the cash position primarily reflects the impact of $311 million in purchases of property and equipment and $258 million in stock repurchase activities and dividend payments, partially offset by the improvement in net-owned inventory.
- Merchandise inventory decreased 9.6% to $1.75 billion from $1.93 billion last year, driven by a reduction in at-risk inventories while improving store in-stock levels.
- Merchandise payable decreased 7.3% to $923 million from $996 million primarily due to reduced receipts of product.
- Net-owned inventory decreased by $113 million with domestic segment’s decreasing by $92 million, compared to the prior year.
- Capital expenditures, net of landlord reimbursements, for the first quarter totaled $63 million.

The company continued to repurchase stock, consistent with the board''s $1.2 billion authorization, during the quarter.

- The company repurchased 2.5 million shares at a cost of $46.7 million for an average cost $18.68 per share, excluding commission fees.
- By end of the quarter, the company had repurchased 60.4 million shares under this authorization at a cost of $966.3 million or an average cost of $16 per share, excluding commission fees.
- The company still has approximately $234 million for future share repurchases under the current board authorization.

Fiscal 2008 Outlook

The company is upgrading its systems with retail POS, Connect3 and its Oracle-powered merchandising systems in the stores to facilitate future growth.

- The upgrades are expected to reduce SG&A by $200 million annually and give the opportunity to invest in the company’s four strategic growth pillars including additional store openings, IT systems, multi-channel capability build out and Firedog services.

The company expects to open 60 to 65 new and relocated domestic segment Superstores in fiscal 2008.

- The company expects more than half of the openings to be in a 20,000 square foot format.
- Initial results from the 20,000 square foot formats indicate reduced capital expenditures and operating expenses, resulting in higher returns, as compared with the 30,000 square foot formats.

Key questions and answers from the first quarter earnings call conducted by Circuit City Stores, Inc. on June 20, 2007.

Chris Horvers (Bear Stearns): How are you working at driving shareholder value on InterTAN and how do you measure it? Has the distraction value changed your commitment to the divestiture process?

Phil Schoonover: Our decision is to sell the company if we can get a reasonable price that optimizes shareholder value. We have received suggestions including Goldman’s to optimize the value of that company. With the expected trade-off between profitability and value of the company, we are looking for suggestions that could be handled in the near term that would improve shareholder value. There is a distraction factor with InterTAN and there is also significant improvement in operating results year over year for the first quarter, and that will help improve shareholder value.

Chris Horvers (Bear Stearns): What trend do you expect on the investment spend for the rest of the year?

Bill Cimino: We expected the first quarter to have the largest year-over-year impact in terms of the investment spend, and then the impact would decline in the second quarter, roughly breakeven in the third quarter, and then turn to a benefit in the fourth quarter.

Bill Armstrong (CL King & Associates): Could you discuss the environment concerning competitive pricing in both extended service contracts as well as installation or Firedog services? How is that impacting the dollar attachment rates?

Dave Matthews: There are some unique benefits to our Circuit City Advantage Program that our competitors do not have, TV being an example. We provide a kit with value for our customer that they can realize immediately. We also have a program that is good for the life of the warranty, meaning if you exercise the warranty, it is still good for the balance of the term. We’re currently working on the pricing of our Circuit City Advantage Program, making sure we''re providing maximum value, trying to take costs out of the program in parallel.