Updated from 9:37 a.m. EDT
After a first quarter that fizzled,
doesn't see much spark for the full year, either.
The struggling electronics retailer said Wednesday that it swung to a first-quarter loss, as expected, and the company pulled the plug on its full-year guidance due to its ongoing restructuring plan and a tough economic environment.
For the quarter ended May 31, the Richmond, Va.-based company posted a loss of $54.6 million, or 33 cents a share, compared with a year-earlier profit of $6.4 million, or 4 cents a share.
Sales fell to $2.49 billion from $2.6 billion. Same-store sales, or sales at stores open at least a year, dropped 5.6%.
Analysts polled by Thomson Financial projected a loss of 32 cents a share and sales of $2.44 billion for the quarter.
The results weren't much of a surprise, since Circuit City had already warned in late April that it expected a loss for the quarter due to pricing issues in the flat-panel TV category. As a result, shares were barely moving, recently rising 8 cents to $16.15.
In the latest quarter, Circuit City's total television same-store sales, or comps, sank by the double-digits, with a decrease in projection and tube televisions sales more than offsetting growth in flat-panel TVs.
Comp sales of notebook computers increased by double digits, while comps on desktop computers were roughly flat compared with a year ago.
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Circuit City's gross profit margin fell to 22.5% from 24.5% a year earlier. The company attributed the decline to a decrease in warranty sales and a greater mix toward lower-margin PC hardware sales.
The results come a day after larger rival
surprise drop in first-quarter earnings amid an increase in sales of lower-margin products.
"While I am disappointed with the large net loss for the first quarter, we met our revised guidance while up against our toughest comparable store sales increase comparison of this fiscal year," said Philip Schoonover, Circuit City's chairman, president and chief executive. "We made significant and substantial changes to improve Circuit City and position the company to compete while facing economic uncertainty in the near term and new realities in the consumer electronics marketplace over the longer term."
Circuit City said it expects continued volatility in its results in the near term because of new systems that it plans to roll out this summer.
The company is installing new merchandising and marketing systems as part of a broader structural change to address slumping sales. Among these restructuring moves was a plan announced in March to lay off 3,400 employees and replace them with lower-paid workers.
Circuit City said its new retail operating platforms, combined with an uncertain macroeconomic environment, led it to pull its financial forecast for the year. Previously, the company projected that fiscal 2008 earnings from continuing operations before income taxes as a percentage of sales would be 1.4% to 1.8%.
For its part, Best Buy also pointed out macroeconomic concerns Tuesday and lowered its earnings projection for the year.
Both companies have also been caught by the rapid decline in prices of flat-screen TVs. As well, frequent manufacturer upgrades have forced the retailers to lower prices on older models of TVs, cutting into margins.
"You're left with a more expensive inventory than you just ordered a few weeks ago, but you have no choice," says Scott Rothbort, founder of LakeView Asset Management and a contributor to
. "It's like car dealerships that want to get rid of the old models."
is also pressuring retailers with lower-priced electronics, to the point that it is a bigger factor than even behemoth
"Costco has much more floor space for flat-screen TVs," he says.
Craig Johnson, president of consulting firm Customer Growth Partners, sees Circuit City caught between a woofer and a hard place.
He points out that the company doesn't offer the kind of after-market services that Best Buy does, such as Geek Squad, which can provide a recurring revenue stream and insulation against the vagaries of the market. But the company can't compete on pricing with Costco and Wal-Mart.
"They're in a difficult position," he says. "It's not an impossible position, but they're clearly in turnaround mode, and they need to step up the execution to get back in shape."