UPDATE 3-Circuit City posts big loss, withdraws outlook
(Adds analyst comment, company react, paragraphs 7-8, edits)
By Karen Jacobs
ATLANTA, Sept 29 (Reuters) - U.S. electronics retailer Circuit City Stores CC.N posted a wider quarterly loss and withdrew its financial outlook on Monday as it reviewed its business ahead of the holiday shopping season, sending its shares plummeting 17 percent.
The company, which saw the departure of its chairman and chief executive officer last week, said it could close stores as part of a turnaround plan, and added it would suspend store openings during the 2010 fiscal year.
"These guys face a big uphill climb," said Joe Feldman, managing director of Telsey Advisory Group. "The busiest time of the year is fast approaching and are they going to be able to execute properly is going to be a big concern."
Retail forecasters are predicting that 2008 will be one of the bleakest holiday sales periods in years, as the U.S. housing slump, credit crisis and job losses force consumers to rein in spending.
The Richmond, Virginia chain has been trying to rebuild profitability and restore investor confidence over the past year in the face of intense competition from Best Buy Co (BBY.N), which has been gaining market share in key electronics categories.
Circuit City has posted losses for five of the past six quarters, and sales have fallen for more than a year.
"The risks of bankruptcy are very real, in our opinion," Stifel Nicolaus analyst David Schick said in a research note. He added that suppliers "will have to decide how they plan to do business at Circuit City."
Analysts have expressed concern about both the health of Circuit City's balance sheet and whether vendors have tightened credit terms. Cash and short-term investments fell to $92.5 million as of Aug. 31, from $424.4 million a year earlier, as the company bought property and equipment and had the loss from operations.
Circuit City spokesman Bill Cimino said the retailer has adequate liquidity under an existing credit facility to support its turnaround.
The retailer's second-quarter net loss was $239.2 million, or $1.45 a share, compared with a loss of $62.8 million, or 38 cents a share, a year earlier.
Excluding charges, the loss came to $1 a share, compared with a loss of $1.04 expected by analysts on average, according to Reuters Estimates. Gross margin improvement helped contain the loss as the company controlled merchandise theft.
But total sales sank nearly 10 percent to $2.39 billion, short of the $2.5 billion analysts expected, as lower U.S. sales offset a rise internationally.
Sales at stores open at least a year, or same-store sales, fell 13.3 percent, hurt by lower results in major categories including televisions, computers and video games.
BUILDING TO HOLIDAY SEASON
Circuit City said it has started a comprehensive business review under which all options, including store closures, were on the table as it tries to return to profitability.
It said it try to improve retail basics for the critical holiday season, including a new marketing campaign, upgrading store signage and boosting its in-stock position on key products.
The retailer became the subject of takeover speculation as results weakened and its stock dropped to 20-year lows this year.
Executives said during a conference call that major suppliers support its turnaround efforts. "It is clear that the vendors do view us as relevant," said James Marcum, who was named acting CEO last week when Philip Schoonover agreed to step down from Circuit City's top job.
The retailer also said it was evaluating spending projects planned for the second half and for the fiscal year ending in 2010. Other than existing commitments, it plans to suspend store openings beginning next fiscal year.
The company's shares were down 26 cents, or about 18 percent, at $1.13 in afternoon New York Stock Exchange trading. Best Buy slipped nearly 6 percent to $36.91.
Circuit City's stock has plummeted 69 percent this year, while Best Buy is down about 27 percent. (Editing by Maureen Bavdek, Leslie Gevirtz)
