FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________ to __________
Commission File Number 1-5767
CIRCUIT CITY STORES, INC.
(Exact Name of Registrant as Specified in its Charter)
VIRGINIA 54-0493875
(State of Incorporation) (I.R.S. Employer
Identification No.)
9950 MAYLAND DRIVE, RICHMOND, VIRGINIA 23233
(Address of Principal Executive Offices and Zip Code)
(804) 527-4000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No ______
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT DECEMBER 31, 1993
Common Stock, par value $0.50 96,023,247 Shares
An Index is included on Page 2 and a separate Index to Exhibits is included on
Page 11.
PAGE 1 OF 12
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CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
INDEX
PAGE
NO.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets -
November 30, 1993 and February 28, 1993 3
Consolidated Statements of Earnings -
Three Months and Nine Months
Ended November 30, 1993 and 1992 4
Consolidated Statements of Cash Flows -
Nine Months Ended November 30, 1993 and 1992 5
Note to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-10
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
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PART I. FINANCIAL I
ITEM 1. FINANCIAL STATEMENTS
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
NOVEMBER 30, 1993 FEBRUARY 28, 1993
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 40,656 $ 141,412
Net accounts and notes receivable 188,198 120,448
Merchandise inventory 1,013,224 515,771
Prepaid expenses and other current assets 23,936 13,270
Total current assets 1,266,014 790,901
Property and equipment, net 458,851 370,791
Deferred income taxes 100,068 87,588
Other assets 7,742 13,650
TOTAL ASSETS $1,832,675 $1,262,930
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 1,832 $ 1,828
Accounts payable 826,333 278,348
Accrued expenses and other current
liabilities 77,165 66,487
Accrued income taxes 12,181 26,310
Total current liabilities 917,511 372,973
Long-term debt excluding current
installments 20,900 82,387
Deferred revenue and other liabilities 254,460 232,054
TOTAL LIABILITIES 1,192,871 687,414
Stockholders' equity:
Common stock, $0.50 par value 48,003 47,835
Capital in excess of par value 59,755 54,540
Retained earnings 532,046 473,141
TOTAL STOCKHOLDERS' EQUITY 639,804 575,516
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,832,675 $1,262,930
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
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CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(Amounts in thousands except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1993 1992 1993 1992
Net sales and operating revenues $1,018,051 $805,426 $2,723,679 $2,171,517
Cost of sales, buying and
warehousing 755,473 584,201 2,005,271 1,567,629
Gross profit 262,578 221,225 718,408 603,888
Selling, general and administrative
expenses 230,492 193,401 615,638 522,765
Interest expense 926 1,424 2,294 2,603
Total expenses 231,418 194,825 617,932 525,368
Earnings before income taxes 31,160 26,400 100,476 78,520
Provision for income taxes 11,700 9,768 35,819 29,054
Net earnings $ 19,460 $ 16,632 $ 64,657 $ 49,466
Weighted average common shares
and common share equivalents 97,452 96,679 97,522 96,578
Net earnings per share $ 0.20 $ 0.17 $ 0.66 $ 0.51
Dividends paid per common share $ 0.020 $ 0.015 $ 0.060 0.045
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
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CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Nine Months Ended
November 30,
1993 1992
OPERATING ACTIVITIES:
Net earnings $ 64,657 $ 49,466
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 39,542 30,100
Loss on sale of property and equipment 916 650
eferred income taxes (12,480) (12,311)
Increase in deferred revenue and other liabilities 22,406 25,628
Increase in accounts and notes receivable (67,750) (7,554)
Increase in merchandise inventory, prepaid expenses
and other current assets (508,119) (322,507)
Decrease in other assets 5,908 3,857
Increase in accounts payable, accrued expenses
and other current liabilities 272,534 168,896
NET CASH USED IN OPERATING ACTIVITIES (182,386) (63,775)
INVESTING ACTIVITIES:
Purchases of property and equipment (192,231) (145,080)
Proceeds from sale of property and equipment 63,713 39,570
NET CASH USED IN INVESTING ACTIVITIES (128,518) (105,510)
FINANCING ACTIVITES:
Proceeds from issuance of short-term debt 272,000 125,000
Principal payments on long-term debt (61,483) (1,577)
Proceeds from issuance of common stock 5,383 6,273
Dividends paid (5,752) (4,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES 210,148 125,696
Decrease in cash and cash equivalents (100,756) (43,589)
Cash and cash equivalents at beginning of year 141,412 71,451
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 40,656 $ 27,862
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 5 OF 12
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CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements conform to generally accepted
accounting principles. The interim period consolidated financial
statements are unaudited; however, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial statements have been
included. The consolidated financial statements included herein should
be read in conjunction with the notes to consolidated financial statements
included in the Company's 1993 annual report to stockholders.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET SALES AND OPERATING REVENUES AND GENERAL COMMENTS
Sales for the third quarter of fiscal 1994 were $1.02 billion, an increase of 26
percent over the same period last year. The total sales growth includes the
sales from the 40 stores opened during the past year and a comparable store
sales increase of 5 percent.
Comparable store sales increases for the third quarter and the first nine months
of fiscal years 1993 and 1994 were as follows:
FY'94 Third Quarter Nine Months
SEP OCT NOV FY'94 FY'93 FY'94 FY'93
4% 6% 6% 5% 8% 7% 6%
During the fourth quarter of fiscal 1994, the Company expects that comparable
store sales growth could moderate from the year-to-date pace due to stronger
prior year results and a high level of competition throughout most markets.
Total sales growth also is expected to moderate during the fourth quarter,
reflecting the change in comparable store sales increases and a store opening
schedule that is similar to the prior year's.
Total sales by merchandise categories are listed below:
Third Quarter Nine Months
Fiscal 1994 Fiscal 1993 Fiscal 1994 Fiscal 1993
TV 21% 24% 20% 23%
VCR 17 18 17 18
Audio 20 20 21 20
Home Office 14 8 11 6
Other Electronics* 10 11 11 12
Appliances 18 19 20 21
TOTAL 100% 100% 100% 100%
*Includes such products as telephones, portable radios, tape players, car
stereos and entertainment software.
Home Office continues to be the strongest growing product category, reflecting
the Company's increased emphasis and the industry growth in this area.
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During the third quarter of fiscal 1994, the Company opened 26 stores, including
14 Superstores in Chicago, five Superstores in Boston, two Superstores in San
Francisco, one Superstore each in San Diego and Los Angeles, and a replacement
Superstore in Richmond. The Company also introduced a new prototype store
designed to serve smaller trade areas. The first two of these stores, which
are called Circuit City, are located in Harrisonburg, Va., and Fredericksburg,
Va. They are approximately 15,000 square feet and carry electronics, major
appliances and home office products. The table below details store openings:
Stores Open At End of Quarter Estimate
Nov. 30, 1993 Nov. 30, 1992 Feb. 29, 1994 Feb. 28, 1993
Superstores 251 213 252 214
Circuit City 2 0 2 0
Electronics only 7 7 6 7
Mall Stores 37 39 37 39
TOTAL STORES 297 259 297 260
The Company recently introduced two new extended service warranty products
issued by unrelated third parties. The first program provides in-home service
that covers personal computer products. The Company began selling this program
in November in most major markets. The second extended service warranty
product is backed by insurance and covers electronics and major appliances.
This program which began in December will be gradually introduced in highly
competitive markets. Under both programs, the Company acts as a seller for the
unrelated parties (the "warrantors") and has no contractual liability to the
customer under the extended service warranty contracts nor any other material
obligation to the customer or the warrantors. The Company will also continue
selling its own extended service warranty contracts.
The Company's operations, in common with other retailers in general, are subject
to seasonal influences. Historically, the Company has realized more of its net
sales and net earnings in the final fiscal quarter, which includes the Christmas
season, than in any other fiscal quarter. The net earnings of any interim
quarter are seasonally disproportionate to net sales since administrative and
certain operating expenses remain relatively constant during the year.
Therefore, interim results should not be relied upon as necessarily indicative
of results for the entire fiscal year.
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COST OF SALES, BUYING AND WAREHOUSING
The gross profit margin decreased to 25.8 percent in the third quarter of this
year from 27.5 percent in the third quarter of fiscal 1993. For the nine-month
period the gross profit margin was 26.4 percent this year versus 27.8 percent
last year.
These lower margins reflect a high level of competition throughout most markets
and an increase in computers as a percent of the total sales mix. Management
expects that during the fourth quarter of fiscal 1994 these factors will
continue to lower margins on a year-over-year basis.
In fiscal 1995, the Company plans to pursue a more aggressive marketing
approach, particularly in highly competitive markets, which should result in
reduced gross profit margins on a year-over-year basis.
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES
Improvements in the Company's selling, general and administrative (SG&A) expense
ratio, resulting from increased operating efficiency, the contribution from the
Company's private-label credit card program and, for the nine months, more
efficient advertising expenditures, have offset a portion of the gross margin
pressure in fiscal 1994. The SG&A expense ratio improved to 22.6 percent in the
third quarter of this year from 24.0 percent for the same quarter last year.
For the nine-month period ended November 30, 1993, the expense ratio was
22.6 percent versus 24.1 percent in the same period last year. The Company
expects that during the fourth quarter, the favorable trend in SG&A rates will
continue, but at a more moderate pace. This moderation reflects less rapid
comparable store growth and the advertising expenses associated with two major
new markets.
INTEREST EXPENSE
Interest expense for the third quarter of fiscal 1994 was $926,000 (0.1 percent
of sales) compared to $1,424,000 (0.2 percent of sales) for the third quarter
of last year. The decline in interest expense primarily reflects a lower
average interest rate. This trend is expected to continue through the end of
fiscal 1994.
INCOME TAXES
The Company's effective tax rate increased to 37.5 percent in the third quarter
of fiscal 1994 compared with 37.0 percent in the same quarter last year. For
the nine-month period ended November 30, 1993, the effective tax rate was 35.7
percent versus 37.0 percent in the same period last year. The decrease in the
rate was due to the enactment of the Omnibus Tax Reconciliation Act of 1993
on August 12, 1993. The terms of the act produced an increase in the Company's
deferred tax asset as prescribed by Statement of Financial Accounting Standards
No. 109. The Company expects an effective tax rate of approximately 37.5
percent for the remainder of the fiscal year.
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NET EARNINGS
Net earnings for the quarter ended November 30, 1993, were $19.5 million, an
increase of 17 percent from $16.6 million in the same quarter last year. Net
earnings per share rose 18 percent to 20 cents from 17 cents.
Net earnings for the nine months ended November 30, 1993, increased 31 percent
to $64.7 million from $49.5 million in the first nine months of last year.
Including the favorable 2-cent impact from the increase in the statutory federal
tax rate during the second quarter, net earnings per share rose 29 percent to 66
cents from 51 cents.
Due to a more aggressive marketing approach and increased costs associated with
an acceleration in store expansion by approximately 50% over fiscal 1994,
management anticipates no material earnings growth in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Total assets at November 30, 1993, were $1,832.7 million, up $569.7 million or
45 percent since February 28, 1993. The largest contributor to the asset
increase was a $497.5 million inventory increase to support the holiday season
sales and store openings. Property and equipment have increased by a net of
$88.1 million since the end of fiscal 1993. This net increase is due largely to
store openings. Net accounts and notes receivable have increased $67.8 million
since February 28, 1993, mainly due to an increase in credit card accounts
generated by the Company's credit card bank subsidiary. Cash has decreased
by $100.8 million largely due to the payoff of $60 million of subordinated debt
during the second quarter and the increase in merchandise inventory and
property and equipment.
Accounts payable increased $548 million since the end of fiscal 1993 due
primarily to a $223 million increase in merchandise and other payables and a
$272 million increase in short-term debt. These increases reflect the purchase
of inventory for the holiday season and for store expansions.
The Company expects to continue its long-term financing strategy during the
remainder of fiscal 1994. Management anticipates that capital expenditures will
be funded through a combination of internally generated funds, sale-leaseback
transactions and operating leases. The Company completed a sale-leaseback
transaction for approximately $24 million in early December. At November 30,
1993, the Company maintained a multi-year $100 million unsecured revolving
credit facility and $145 million in committed lines that are renewed annually
with various banks. In addition, the Company also has access to other
uncommitted lines.
The Company's credit card bank subsidiary has asset securitization facilities
that allow the subsidiary to transfer up to $510 million of its receivables to a
third party. Management anticipates increasing the amount of receivables
securitized during the fourth quarter of fiscal 1994.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Index to Exhibits:
None
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended November 30, 1993.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CIRCUIT CITY STORES, INC.
(Company)
By: s/Richard L. Sharp
Richard L. Sharp
President and Chief
Executive Officer
By: s/Michael T. Chalifoux
Michael T. Chalifoux
Senior Vice President and
Chief Financial Officer
By: s/Keith D. Browning
Keith D. Browning
Corporate Controller and
Chief Accounting Officer
January 13, 1994
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