Circuit City posts wider loss, suspends dividend

NEW YORK (Reuters) - Circuit City Stores CC.N reported a bigger quarterly loss on Thursday as sales fell, and the consumer electronics chain said it had suspended its dividend to save cash, sending its shares down about 3 percent.

The company, which has received a takeover offer from Blockbuster Inc (BBI.N), also said it would cut back on capital expenditures this year and forecast a wider loss for the current quarter amid weak U.S. consumer spending.

But Circuit City said it expected a "gradual recovery" in the second half of its fiscal year, which ends in February.

"I'm highly skeptical of the company's ability to turn around results in the second half," said FTN Midwest Securities senior analyst Anthony Chukumba. He added that Circuit City "continues to cede market share to Best Buy (BBY.N)."

Circuit City's net loss widened to $164.8 million, or $1 a share, in the first quarter that ended May 31, from $54.6 million, or 33 cents a share, a year earlier.

Analysts expected a loss of $1.08 a share, according to Reuters Estimates.

Sales fell 7 percent to $2.3 billion as weakness in the United States offset gains internationally. Sales at stores open at least a year fell 11.3 percent overall.

Products posting weaker sales included TVs, where declines in projection and tube sets offset strength in flat-panels; digital imaging; and camcorders. Extended warranty sales fell to $53.8 million from $73.7 million a year earlier.

The results contrasted sharply with Best Buy's this week. The industry leader reported a better-than-expected quarterly profit on rising sales, citing market share gains in televisions, computers and video games.

Circuit City, which opened its financial books to Blockbuster last month, said it was still exploring strategic options. The company became the focus of takeover rumors in the past year as its results weakened.

It initially refused to enter due diligence, citing concerns about financing, but reversed that position in May after billionaire investor and Blockbuster shareholder Carl Icahn expressed willingness to buy the company if a Blockbuster deal did not materialize.

Circuit City had also come under pressure from activist investors pushing for change in recent months. Last month, it agreed to include three director nominees put forth by shareholder Mark Wattles as board candidates at this year's annual meeting, ending a proxy fight.

The company said it believed it has adequate liquidity to fund a turnaround, but the board suspended future dividend payments to conserve cash. Circuit City's cash position sank to $92.2 million on May 31 from $364.1 million a year earlier.

"While execution may have improved incrementally, it will take time to change the culture at Circuit City, and we also believe the company cannot be as aggressive on its financing offers as others," Credit Suisse analyst Gary Balter said in a research note.

Circuit City also cut its capital spending range for the year to $120 million to $140 million from a previous forecast of $130 million to $150 million.

For the second quarter, Circuit City expects a loss of $170 million to $185 million from continuing operations before income taxes, compared with a year-earlier loss of $128.2 million.