- The Washington Times - Saturday, February 23, 2002

RICHMOND (AP) Circuit City Stores Inc. said yesterday that fourth-quarter earnings for its Circuit City Group will fall below Wall Street expectations and that it planned to spin off its profitable CarMax division as a separate company later this year.
The announcement sent Circuit City shares plummeting about 30 percent, or $7.04 per share, to $16.55 on the New York Stock Exchange.
CarMax, which is entirely owned by Circuit City, currently trades as a tracking stock designed to reflect the used-car seller's performance. Its shares fell $3.16, to $25.35 on the NYSE.
Circuit City President and Chief Executive W. Alan McCollough said the spinoff would enable investors to analyze each business on its own merits.
Circuit City Stores Inc. is the parent company of both Circuit City Group and CarMax Group. Earnings are applied to two different stocks under a complicated formula. The Circuit City stock currently includes all the earnings from the Circuit City stores and about 64 percent of the earnings from the CarMax Stores. The remaining 36 percent of CarMax earnings were applied to the CarMax stock.
The company said it now expects Circuit City Group to achieve earnings in the range of 70 cents to 74 cents for the fourth quarter ending Feb. 28. Analysts polled by Thomson Financial/First Call expected 75 cents per share.
The retailer's projection includes 68 cents to 71 cents a share from the Circuit City business, a contribution of 5 cents to 6 cents a share contribution from CarMax, and certain lease-termination costs.
The company also said that it expects mid-single-digit growth in sales at store open at least a year for the quarter.
Mr. McCollough said sales at its Circuit City electronics stores in January and February have been disappointing, largely because of a lack of inventory in key items such as camcorders.
"When you don't have any product, you don't sell any," Mr. McCollough told Wall Street analysts during a conference call yesterday.
The lack of inventory in January and February stemmed from two factors, Mr. McCollough said: unusually strong demand in December, and a lack of production by manufacturers who feared an economic slump after September 11.
Circuit City's fourth quarter is typically its strongest because it includes the bulk of the Christmas sales period.
The retailer, hurt by a softening in the economy and demand for commercial properties during the past year, also said it plans to increase its liability for lease-termination costs related to the fiscal 2001 exit from the appliance business by about $10 million. The costs are expected to reduce Circuit City Group's fourth-quarter profits by about 3 cents per share.
In fiscal 2002, Circuit City Group expects earnings to be 89 cents to 93 cents. Analysts polled by Thomson Financial/First Call anticipate 93 cents per share.
Based on "relatively stable gross profit margins and mid-single-digit same-store sales growth," the company expects the Circuit City business to contribute earnings of about 75 cents to 85 cents a share, excluding remodeling expenses, in fiscal 2003.


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