FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1994
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) (IRS 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 30,
1994
Common Stock, par value 96,460,457 Shares
$0.50
An Index is included on Page 2 and a separate Index for Exhibits is
included on Page 11.
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
INDEX
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
November 30, 1994 and February 28, 1994 3
Consolidated Statements of Earnings -
Three Months and Nine Months Ended
November 30, 1994 and 1993 4
Consolidated Statements of Cash Flows -
Nine Months Ended November 30, 1994 and 1993 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
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands)
<S> <C> <C>
November 30, 1994 February 28, 1994
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $48,051 $75,194
Net accounts and notes 267,529 188,990
receivable
Merchandise inventory 1,377,058 721,348
Prepaid expenses and other 21,348 11,476
current assets
Total current assets 1,713,986 997,008
Property and equipment, net 590,565 438,096
Deferred income taxes 87,816 105,388
Other assets 18,706 14,172
TOTAL ASSETS
$2,411,073 $1,554,664
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current installments of long- $1,627 $1,819
term debt
Accounts payable 772,713 419,037
Short-term debt 384,000 0
Accrued expenses and other 91,603 86,826
current liabilities
Accrued income taxes 4,273 38,582
Total current liabilities 1,254,216 546,264
Long-term debt, excluding 127,683 29,648
current installments
Deferred revenue and other 237,901 268,360
liabilities
TOTAL LIABILITIES 1,619,800 844,272
Stockholders' equity:
Common stock, $0.50 par value 48,195 48,040
Capital in excess of par 67,767 64,485
value
Retained earnings 675,311 597,867
TOTAL STOCKHOLDERS' EQUITY 791,273 710,392
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY
$2,411,073 $1,554,664
See accompanying note to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
(Amounts in thousands except per share data)
<S> <C> <C> <C> <C>
Three Months Three Months
November 30, November 30,
1994 1993 1994 1993
Net sales and operating
revenues $1,405,445 $1,018,051 $3,672,712 $2,723,679
Cost of sales, buying and 1,069,396 755,473 2,763,369 2,005,271
warehousing
Gross profit 336,049 262,578 909,343 718,408
Selling, general and
administrative
expenses 286,164 230,492 768,975 615,638
Interest expense 4,378 926 5,673 2,294
Total expenses 290,542 231,418 774,648 617,932
Earnings before income taxes 45,507 31,160 134,695 100,476
Provision for income taxes 17,065 11,700 50,510 35,819
Net earnings $28,442 $19,460 $84,185 $64,657
Weighted average common
shares
and common share 97,620 97,452 97,531 97,522
equivalents
Net earnings per share $0.29 $0.20 $0.86 $0.66
Dividends paid per common $0.025 $0.020 $0.070 $0.060
share
See accompanying note to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
<S> <C> <C>
Nine Months Ended
November 30,
1994 1993
Operating Activities:
Net earnings $84,185 $64,657
Adjustments to reconcile net
earnings to net
cash used in operating activities:
Depreciation and amortization 49,551 39,542
Loss on sales of property and 1,792 916
equipment
Provision for deferred income taxes 17,572 (12,480)
(Decrease) increase in deferred
revenue
and other liabilities (30,459) 22,406
Increase in accounts and notes (78,539) (67,750)
receivable
Increase in merchandise inventory,
prepaid expenses
and other current assets (665,582) (508,119)
(Increase) decrease in other assets (4,534) 5,908
Increase in accounts payable,
accrued expenses
and other current liabilities 324,144 272,534
Net cash used in operating (301,870) (182,386)
activities
Investing Activities:
Purchases of property and equipment (277,753) (192,231)
Proceeds from sales of property and 73,941 63,713
equipment
Net cash used in investing (203,812) (128,518)
activities
Financing Activities:
Proceeds from issuance of long-term 100,000 0
debt
Proceeds from issuance of short-term 384,000 272,000
debt
Principal payments on long-term debt (2,157) (61,483)
Proceeds from issuance of common 3,437 5,383
stock, net
Dividends paid (6,741) (5,752)
Net cash provided by financing 478,539 210,148
activities
Decrease in cash and cash (27,143) (100,756)
equivalents
Cash and cash equivalents at 75,194 141,412
beginning of year
Cash and cash equivalents at end of $48,051 $40,656
period
See accompanying note to consolidated financial statements.
</TABLE>
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Note to Consolidated Financial Statements
The consolidated financial statements conform to generally accepted
accounting principles. The interim period 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 1994 annual report to stockholders.
<PAGE>
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 1995 were $1.41 billion, a 38 percent
increase from $1.02 billion in the same period last year. The total sales
growth includes the sales from 64 Superstores opened during the past year
and a comparable store sales increase of 19 percent during the third
quarter. The third quarter sales results exceeded management's
expectations and reflect a generally healthy climate for hard goods
retailers, the continued appeal of the Company's consumer offer and the
success of the Company's store opening program.
For the nine months ended November 30, 1994, total sales grew 35 percent to
$3.67 billion from $2.72 billion in the same period last year.
Comparable store sales increases for the third quarter and the first nine
months of fiscal years 1995 and 1994 were as follows:
FY '95 3rd Quarter Nine Months
SEPT OCT NOV FY '95 FY '94 FY '95 FY '94
22% 18% 18% 19% 5% 15% 7%
Management believes that its marketing programs and a continuation of the
current hard goods retail sales environment will again produce strong
comparable store sales growth in the final quarter. However, increased
competition in some markets or a slower sales pace for hard goods retailers
in general could limit the comparable store sales increases.
Circuit City opened 36 stores during the quarter. The new markets included
Portland, with four stores; Cleveland, three stores; Kansas City, three
stores; and El Paso, two stores. The Company also entered the following
markets with one store each: Lubbock, Amarillo, Longview, and Tyler,
Texas; Chico, Calif; Lafayette, La.; Peoria, Ill.; and Tallahassee, Fla.
Circuit City added three stores in Chicago, two in Los Angeles, two in
Minneapolis, and one each in Houston, Boston, Atlanta, Miami and
Philadelphia. The Company also opened four mall-based Circuit City Express
stores during the quarter, including three in Minneapolis and one in
Boston. The Company's fiscal 1995 expansion program is on target with seven
more Superstores scheduled for the final quarter.
During the third quarter of fiscal 1995, the Company introduced a new store
design with approximately 40,000 total square feet and 25,000 square feet
of selling space. These stores are designed for high-volume trade areas
and include an expanded selection in virtually every merchandise category.
Approximately half of next year's 60 planned new Superstore openings will
feature this new format. Additionally, the Company expects to replace 20
to 25 existing stores next year with this new format, subject to the
availability of suitable real estate.
<PAGE>
The table below details store openings since the third quarter of fiscal
1994:
Stores Open at End of Estimate
Quarter
Nov. 30, Nov. 30, Feb. 28, Feb. 28,
1994 1993 1995 1994
Superstores 301 251 308 251
Circuit City 4 2 4 2
Electronics- 5 7 5 7
Only
Mall Stores 36 37 34 34
Total 346 297 351 294
For the Company's electronics and appliance business, gross dollar sales
from all extended warranty programs rose to 6.0 percent of sales in the
third quarter of fiscal year 1995 from 5.9 percent in the same period last
year. The total extended warranty revenue that is reported in total sales
was 5.4 percent of sales in this year's third quarter versus 4.7 percent in
the third quarter of last year. Third-party warranty revenue rose to 2.4
percent of sales in this year's third quarter from 0.6 percent in the same
period last year.
Total sales by merchandise categories are listed below:
3rd Quarter Nine Months
Fiscal 1995 Fiscal 1994 Fiscal 1995 Fiscal 1994
TV 19 % 21 % 18 % 20 %
VCR/Camcorders 14 17 15 17
Audio 19 20 20 21
Home Office 22 14 18 11
Appliances 15 18 18 20
Other * 11 10 11 11
Total 100 % 100 % 100 % 100 %
*Includes such products as telephones, portable radios, portable tape
players 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.
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.
<PAGE>
Cost of Sales, Buying and Warehousing
As anticipated, the gross profit margin decreased from 25.8 percent in the
third quarter of last year to 23.9 percent in the third quarter of fiscal
1995. The gross margins for the nine-month periods ended November 30, 1994
and 1993, were 24.8 and 26.4 percent, respectively.
The lower margins reflect increased competition in some markets and a
higher level of home office products and music software, which carry lower
gross profit margins, in the Company's sales mix. Management expects that
during the last quarter of fiscal 1995 these factors will continue to lower
margins on a year-over-year basis.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expense ratio improved
from 22.6 percent in the third quarter of last year to 20.4 percent for the
same period this year. For the nine-month period ended November 30, 1994,
the expense ratio was 20.9 percent versus 22.6 percent in the same period
last year.
The improvement in the ratio reflects the strong sales growth and leverage
from store additions in existing markets. The Company expects that
improvements in the SG&A ratio will continue in the fourth quarter and will
again reflect the rapid sales growth and leverage from store additions in
existing markets.
Interest Expense
Interest expense increased to 0.3 percent of sales in this year's third
quarter from 0.1 percent last year. For the nine months ended November 30,
1994, interest expense was 0.2 percent of sales compared to 0.1 percent of
sales in the same period last year. The increases for both the third
quarter and nine-month period reflect higher interest rates and a greater
level of seasonal borrowing resulting from the Company's growth. The
Company does not anticipate a significant change in the interest expense
ratio during the last three months of fiscal 1995.
Income Taxes
The effective income tax rate was 37.5 percent in the third quarter of both
fiscal years 1995 and 1994. For the nine-month period ended November 30,
1994, the effective tax rate was 37.5 percent versus 35.7 percent in the
same period last year. The change was due to the increase in the corporate
statutory federal income tax rate enacted in August 1993. The increase
produced a rise in the Company's deferred tax asset as prescribed by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The tax benefit from the revaluation of the deferred tax asset
reduced the Company's effective tax rate for the second quarter and for the
first nine months of last year. The Company expects an effective tax rate
of approximately 37.5 percent for the remainder of fiscal 1995.
<PAGE>
Net Earnings
Net earnings for the quarter ended November 30, 1994, were $28.4 million,
an increase of 46 percent from $19.5 million in the same period last year.
Net earnings per share rose 45 percent to 29 cents from 20 cents.
Net earnings for the nine months ended November 30, 1994, were $84.2
million, an increase of 30 percent from $64.7 million in the same period
last year. Net earnings per share rose 30 percent to 86 cents from 66
cents.
At the beginning of the current fiscal year, the Company anticipated that a
more aggressive marketing stance and the acceleration in the Superstore
expansion program would result in no material earnings growth for the year.
However, stronger than anticipated comparable store sales growth in the
first nine months produced earnings above expectations. The Company
expects to achieve modest earnings growth during the last quarter even if
comparable store sales growth moderates slightly.
Liquidity and Capital Resources
Total assets at November 30, 1994, were $2,411.1 million, up $856.4 million
or 55 percent since February 28, 1994. The largest contributor to the
asset growth was a $655.7 million inventory increase to support the holiday
season sales volume and new store openings. Property and equipment has
increased $152.5 million since the end of fiscal 1994. This net increase
is due largely to planned and completed store openings. Net accounts and
notes receivable have increased $78.5 million since February 28, 1994, due
to an increase in credit card accounts generated by the Company's credit
card bank subsidiary.
Accounts payable has increased $353.7 million and short-term debt has
increased $384.0 million since February 28, 1994, due to the increase in
inventory and expenses associated with new store openings. Long-term debt
has increased $98.0 million since the end of fiscal 1994 due to the $100
million senior unsecured term loan agreement entered into in the second
quarter of fiscal year 1995.
The Company expects to continue its current long-term capitalization
strategy throughout fiscal 1995. Management anticipates that capital
expenditures will be funded through a combination of internally generated
funds, sale-leaseback transactions, operating leases, and proceeds of the
recent $100 million in long-term debt. At November 30, 1994, the Company
maintained a multi-year $100 million unsecured revolving credit facility
and $285 million in seasonal lines that are renewed annually with various
banks.
During the third quarter of fiscal 1995, the Company's credit card bank
subsidiary converted two asset securitization structures for its private-
label credit card into a single master trust that allows the transfer of up
to $760 million in receivables through private placement and the public
market. The master trust vehicle permits further expansion of the
securitization programs to meet future needs. In addition, the Company's
credit card bank subsidiary has an asset securitization program in place
for its other bank card programs that allows the transfer of up to $250
million in receivables.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Index to Exhibits:
(27) Financial Data Schedules
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended November 30, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly 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
Chairman 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 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> NOV-30-1994
<CASH> 48,051
<SECURITIES> 0
<RECEIVABLES> 267,529
<ALLOWANCES> 0
<INVENTORY> 1,377,058
<CURRENT-ASSETS> 1,713,986
<PP&E> 834,031
<DEPRECIATION> 243,466
<TOTAL-ASSETS> 2,411,073
<CURRENT-LIABILITIES> 1,254,216
<BONDS> 127,683
<COMMON> 48,195
0
0
<OTHER-SE> 743,078
<TOTAL-LIABILITY-AND-EQUITY> 2,411,073
<SALES> 1,405,445
<TOTAL-REVENUES> 1,405,445
<CGS> 1,069,396
<TOTAL-COSTS> 1,069,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,378
<INCOME-PRETAX> 45,507
<INCOME-TAX> 17,065
<INCOME-CONTINUING> 28,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,442
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
