- The Washington Times - Monday, June 18, 2001

Circuit City Stores, Inc.'s earnings fell 72 percent in the first fiscal quarter of 2001, staying afloat only because of profits stemming from the company's CarMax used-cars subsidiary, which has been racking up sales.

Circuit City, of Richmond, owns 627 Circuit City stores and about 75 percent of CarMax Group; 25 percent of CarMax trades as its own stock under the name CarMax Group.

The parent company said last Friday earnings for the first fiscal quarter ended May 31 fell 72 percent to $17 million (5 cents per diluted share) from $60.7 million (28 cents) a year before. Diluted shares reflect the value of options, warrants and other securities convertible into common stock.

Yet Circuit City's sales slipped less than earnings because of the strong performance of the CarMax Group. The parent company's sales dropped 13 percent to $26.78 million from $30.75 million a year ago.

Meanwhile, CarMax saw its sales rise 27 percent to $796.82 million from $625.74 million a year ago. Net income also grew, 91 percent to $26.57 million (25 cents) from $14 million (13 cents).

Richard Fradin, analyst with William Blair & Co. in Chicago, says Circuit City's earnings were in line with Wall Street's expectations.

"The highlight was the performance of the CarMax business, which really doubled since last year," Mr. Fradin says. "Circuit City continues to struggle amid repositioning and [being] sort of further challenged by the slugging economy."

Circuit City plans to sell about 11.5 percent of its stake in CarMax to generate as much as $123.5 million, the company said Thursday in a filing with the Securities and Exchange Commission.

Circuit City plans to use this stock sale, its first since CarMax's initial public offering in 1997, to raise money to help finance the ongoing remodeling of its consumer electronics stores.

After the parent company sheds some of CarMax's shares, Circuit City's stock will likely take a dip, but it won't affect CarMax's stock, Mr. Fradin says.

Shares of CarMax remained in the mid teens last week following the company's earnings report. The stock, which has risen from single to double digits over the past six months along with the company's performance, closed at $13.05 Friday on the New York Stock Exchange. Cirucit City's stock rose 9 cents Friday to close at $15.49.

"CarMax is doing very well," says Steven Baumgarten, an analyst with Parker/Hunter Inc. in Pittsburgh.

"Current quarter comparable sales from last year are up 27 percent, which is an excellent figure," Mr. Baumgarten says. "When you consider there has been no store expanding, growing at this rate means they are doing a wonderful job, and that the superstore, no-haggle used-car concept is being widely accepted."

CarMax operates 40 retail units in 37 cities in 10 states, mostly in the South. The company runs 33 user-car superstores and 21 new-car franchises, most of which are a part of superstores.

Locally it runs five stores.

Dandy Barrett, director of investor relations at CarMax, says the company will open 24 to 32 new stores in five years.

"We have a modest growth plan," she says, "that includes the addition of new single store markets and superstores in existing markets."

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