Business

EARNINGS OUTAGE HITS CIRCUIT CITY’S SHARES

Shares of Circuit City nose-dived nearly 29 percent yesterday – its steepest decline in more than five years – after the struggling electronics chain shocked investors with a big quarterly loss and a downbeat outlook.

Failing to capitalize on soaring demand for flat-screen TVs, videogames and GPS gadgets, the Richmond, Va., retailer said its comparable sales plunged 5.6 percent during the third quarter. The short-circuiting contrasted sharply with an increase reported earlier this week at Best Buy, which looks to be widening its lead as the nation’s No. 1 electronics retailer.

Circuit City this spring fired 3,400 of its most experienced sales clerks, replacing them with lower-wage help to trim costs. But the move has since backfired: The downgraded sales force has failed to sell customers higher-margin accessories, product warranties and installation and repair services.

Such items are crucial to electronics stores to shore up profits, as margins on electronics continue to tumble. Circuit City’s labor cuts follow earlier missteps, including eliminating commissions and imposing a zone system on sales clerks that kept them from following customers around the store, said Russell Jones of turnaround consultant Alix Partners.

“It’s a shame, because a few years ago customer service had been one point where Circuit City had a potential advantage over Best Buy,” Jones said.

While Circuit City has focused on cutting costs and relocating and remodeling stores, Best Buy has been staffing its shops with sales clerks specially trained to sell TVs, video games and appliances. This week, Best Buy said third-quarter profit soared 52 percent.

Circuit City’s sixth straight quarterly loss – four times wider than analysts had expected – is another black eye for CEO Phil Schoonover, who came from Best Buy in 2004. “These issues are primarily self-induced and are within our control to improve,” Schoonover said.

On the positive side, Circuit City has conserved cash, controlled inventory and expanded its credit line. “This buys some time for the turnaround steps to work,” Credit Suisse analyst Gary Balter said. For the quarter ended Nov. 30, Circuit City’s net loss was $207.3 million, or $1.26 a share, compared with a year-earlier loss of $20.4 million, or 12 cents a share. Revenue dropped 3.1 percent to $2.96 billion.