UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 25, 2000
CIRCUIT CITY STORES, INC.
(Exact Name of Registrant as Specified in its Charter)
Virginia 1-5767 54-0493875
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(State or other (Commission (IRS Employer
jurisdiction File No.) Identification No.)
of incorporation)
9950 Mayland Drive, Richmond, Virginia 23233
(Address of principal executive offices)
(Registrant's Telephone Number, Including Area Code): (804) 527-4000
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No Change
(Former name or former address, if changed since last report)
Item 5: Other Events
The registrant announced on July 25, 2000, that the board of directors
approved, on July 24, 2000, a three-year plan to strategically reposition the
Company exclusively as a retailer of consumer electronics and home office
products, adding a much greater selection of "take-with" merchandise while
maintaining the Company's commitment to high service and knowledgeable sales
counselors who help consumers understand new product technologies and features.
Under the three-year plan, virtually all Superstores will be remodeled.
The Company will discontinue the sale of major appliances and replace all retail
display fixtures to make room for the expanded consumer electronics and home
office assortments and create more flexible selling space. As announced earlier
this calendar year, stores in central and south Florida are already undergoing
this full remodel process.
As an interim step to these major remodels, the Company will reformat
all stores over the next three months to replace the major appliance category
with an expanded selection of personal computers; imaging products, including
digital cameras; peripherals; games; and computer software. All merchandise
displayed in the space previously occupied by the appliance category will be
directly accessible to the customer with cash registers to provide easy
checkout. A previously announced test of freestanding appliance stores will be
discontinued.
Management cited the continued strength of the consumer electronics and
home office categories and recent substantial weakness in major appliances as
the reason for accelerating the Company's decision to reformat all existing
Superstores. At this point in the second quarter, the Circuit City business is
producing high single digit comparable store sales increases in the combined
consumer electronics and home office categories while comparable store sales in
the major appliance category remain substantially negative.
To exit the appliance business, the Company will close six distribution
centers by the end of this year and two more over the next 12 months. Circuit
City will maintain control over its in-home major appliance repair business,
although repairs will be subcontracted to an unrelated third party. The
distribution and service changes related to this strategic repositioning will
result in the elimination of approximately 1,000 positions. Many of these
Associates will be offered jobs in other areas of the business; where positions
are not available, severance payments and other assistance will be provided.
Sales counselors specializing in major appliances will be offered comparable
positions in other product categories.
The full remodels are expected to cost an average of $2.5 million per
store, but generate per store sales increases of almost 30 percent from current
levels and after-tax returns of approximately 30 percent on the incremental
investment. Approximately $500,000 of the per store remodeling costs will be
expensed in the quarter when construction occurs, with the remainder
capitalized. The Company is finalizing the remodeling schedule for next year and
has not yet determined the remainder of the schedule. However, the Company does
not currently expect to access the debt or equity markets to fund the remodels.
The Company anticipates that the Florida remodels already underway will
cost $15 million before taxes, reducing this year's second quarter earnings by 3
cents per share and third quarter earnings by 2 cents per share. These
reductions were included in initial expectations for the year. The decision to
reformat all stores by the holidays will have an additional adverse impact on
the second and third quarter results, but management expects the more profitable
consumer electronics and home office sales to benefit earnings as early as the
fourth quarter.
Excluding the one-time costs of exiting the appliance business, the
Company expects second quarter earnings per share for the Circuit City business
of approximately 32 cents, compared with 35 cents in the same period last year.
This expectation principally reflects the decline in major appliance sales
during the quarter and the Florida remodeling costs discussed above. In
addition, the Company expects to incur one-time pretax costs of $30 million in
the second quarter related to the appliance business exit, reducing earnings per
share by 9 cents. These costs relate to distribution center lease terminations,
employee severance, fixed asset impairment and the write-off of service parts.
During the third quarter, the Company expects to incur pretax expenses
of $30 million for construction to reformat existing Superstores and $15 million
for excess retail markdowns to rapidly exit the appliance category. The lost
sales from the appliance business are expected to reduce third quarter pretax
earnings by an additional $10 million. On average, interim renovations will cost
approximately $90,000 per store, of which $55,000 will be expensed. Third
quarter earnings per share from the Circuit City business are expected to be
approximately 16 cents after the 17-cent impact related to these costs.
Management expects the fourth quarter to benefit from the store
changeover with earnings per share for the Circuit City business of
approximately 98 cents, which anticipates replacement of the appliance sales
with more profitable consumer electronics and home office sales.
For the full fiscal year, management expects the Circuit City business
to generate earnings per share, including non-recurring charges, of
approximately $1.60, which equals last year's results. Earnings for the Circuit
City Group (NYSE: CC) include earnings generated by the Company's Circuit City
business and a contribution from the Circuit City Group's retained interest in
the CarMax Group.
The foregoing disclosure contains forward-looking statements, which are
subject to risks and uncertainties, including, but not limited to risks
associated with the competitive environment in the consumer electronics and home
office business, consumer acceptance of new products and the change in the
Company's merchandise mix, management's estimates of the costs to exit the
appliance business and overall U.S. economic conditions. Additional discussion
of factors that could cause actual results to differ materially from
management's projections, forecasts, estimates and expectations is contained in
the Circuit City Stores, Inc. report on Form 10-K for its fiscal year ended
February 29, 2000.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CIRCUIT CITY STORES, INC
By: s/W. Alan McCollough
W. Alan McCollough
President and
Chief Executive Officer
Date: July 26, 2000
