Circuit City: 'Dissatisfied'

NEW YORK (CNNMoney.com) -- Circuit City shares plummeted Friday after the retailer reported a much wider-than-expected third-quarter loss that it blamed on its ongoing store reorganization and double-digit sales declines of gadgets like camcorders and DVD players.

The Richmond, Va.-based company - the No. 2 electronics retailer after Best Buy - reported a loss from continuing operations of $208 million, or $1.26 a share.

Shares declined 24 percent Friday on the New York Stock Exchange.

Excluding certain items related to tax adjustments in the quarter, the retailer posted a loss of 64 cents a share.

"Clearly we are very dissatisfied with our third-quarter results," Circuit City CEO Philip Schoonover said during a conference call with analysts to discuss the company's results. "We underestimated the financial impact from the disruption of our transformation work."

Schoonover went on to say that Circuit City's "issues are primarily self-induced but are addressable."

Circuit City's third-quarter follows a second-quarter loss of 32 cents a share.

Anthony Chukumba, analyst with FTN Midwest Securities, said Circuit City's "string of poor earnings results" puts Schoonover under pressure.

"This company has had a lot of turnover in its executive suite and it's being outperformed by Best Buy," he said.

Circuit City shares have slumped 65 percent so far this year versus a 5 percent gain in Best Buy shares.

Earlier this week, Best Buy (BBY, Fortune 500) reported its third-quarter sales and profits that topped estimates, although it cautioned that fewer sales-reporting days in December this year could hurt its fourth-quarter results.

On Wednesday, Circuit City announced cash- and stock-based retention and incentive awards for a number of top executives, including its chief financial officer and other senior vice presidents.

The company said Schoonover was not included in the retention plan.

Chukumba said he was not reading too much into Schoonover's exclusion, for now. "A company shouldn't have to give its CEO more incentives just to do his job," Chukumba said.

Schoonover said the plan was necessary for retaining Circuit City's leadership during the turnaround.

"This is very difficult work; it's not for the faint of heart," he said. Senior executives had not received a bonus for the past two years and would not receive one this year, he added.

"We feel we now have the tools to keep managers and leadership in this company," he said.

The company did not offer new retention awards to its store-level staff. "I think it's fair to say that we pay competitive salary for entry-level associates and we pay supervisors a bonus based on performance," said Schoonover.

Circuit City's sales fell 3.1 percent to $2.96 billion in its recently completed quarter, missing analysts' forecast for sales of $3 billion.

Wall Street had forecast a loss of 31 cents a share on revenue of $3 billion, according to Thomson Financial.

Sales at Circuit City (CC, Fortune 500) stores open at least a year - a key measure of retail performance known as same-store sales - declined 5.6 percent in the quarter. That's a particularly rough result since the period included Black Friday, the day after Thanksgiving that marks the start of retailers' holiday shopping season.

Executives said November comparable sales did increase in the single digits, including a double-digit sales gain on Black Friday. But that wasn't enough to offset the sales weakness in September and October.

"The deep problem in the quarter was that Circuit City was unable to sell a lot of high-margin products," said Pacific Crest Securities analyst, Andy Hargreaves, referring to a 2.4 percent increase in its net warranty sales, which was below a 3.6 percent increase in higher-margin warranty sales in the same period last year.

Both Best Buy and Circuit City are pushing their customers to buy warranty contracts, which cover repairs or defects, along with purchases of big-ticket items like flat-screen TVs as a means to boost their profit margins.

The retailer reported double-digit increases in sales of flat-panel TVs. Total TV sales, led by sales declines in projection and tube televisions, fell in the high single-digits.

Elsewhere, the retailer suffered sales declines of camcorders and DVD players and digital imaging products.

For the year, Circuit City expects to log a "modest loss" from continuing operations before income taxes for the quarter. The retailer plans to open or relocate 50 to 60 stores in 2009. Analysts expect the retailer to post a full-year loss of 46 cents a share.

"Not being profitable during the holiday period is a particularly bad sign in our view," Deutsche Bank analyst Michael Baker wrote in a research note Friday. "Needless to say, these results will hurt Circuit City's stock."