EX-99.1 3 dex991.txt EXHIBIT 99.1 Exhibit 99.1 CIRCUIT CITY STORES, INC. REPORTS FIRST QUARTER RESULTS ------------------------------------------------------- FOR THE COMPANY, THE CIRCUIT CITY GROUP --------------------------------------- AND THE CARMAX GROUP -------------------- Richmond, Va., June 18, 2002 - Circuit City Stores, Inc. today released first quarter results for the Circuit City Group (NYSE:CC) and the CarMax Group (NYSE:KMX) and the consolidated results for Circuit City Stores, Inc. FIRST QUARTER RESULTS Circuit City Stores, Inc. ------------------------- Results for Circuit City Stores, Inc. include the total sales and earnings for the company's Circuit City business and its CarMax business. Total sales for the first quarter ended May 31, 2002, increased 13 percent to $3.12 billion from $2.75 billion in last year's first quarter. Net earnings were $28.0 million compared with $17.0 million in the first quarter of fiscal 2002. Including the earnings from the company's Circuit City business and the earnings attributed to the reserved CarMax Group shares, first quarter net earnings per Circuit City Group share were 8 cents this year, compared with 5 cents for the same period last year. First quarter net earnings per CarMax Group share were 27 cents this year, up from 25 cents last year. All per share amounts are presented on a diluted basis. Effective in the first quarter of fiscal 2003, Circuit City adopted EITF No. 00-14, "Accounting for Certain Sales Incentives," which provides that sales incentives such as mail-in rebates offered to customers should be classified as a reduction of revenue. Previously, Circuit City recorded these rebates in cost of sales, buying and warehousing. In fiscal 2002, these rebate amounts totaled $11.0 million in the first quarter, $13.4 million in the second quarter, $16.7 million in the third quarter and $30.5 million in the fourth quarter. As a result of this change, total sales for Circuit City Stores, Inc. and the Circuit City Group differ from the amounts released on June 6, 2002. The statements of earnings have been reclassified for the first quarter ended May 31, 2001. CarMax now classifies revenue from the sale of wholesale vehicles in net sales and operating revenues. This reclassification increases reported sales revenue. Previously, CarMax wholesale vehicle sales were recorded as a reduction to cost of sales. Market efficiency prevents material differences between CarMax's vehicle acquisition cost and the subsequent wholesale sale. Consequently, net income from sales of wholesale vehicles has not been, and is not expected to be, a material contributor to net earnings. As a result of this change, total sales for Circuit City Stores, Inc. and the CarMax Group are higher than the total sales originally released on June 6, 2002. In addition, total sales and cost of sales have been reclassified for the first quarter ended May 31, 2001, and will be reclassified for the last five fiscal years. Net earnings are allocated to the company's Circuit City Group and CarMax Group Common Stocks. Net earnings for the Circuit City Group include the earnings from the company's Circuit City business and the earnings attributed to the CarMax Group shares reserved for the Circuit City Group or for issuance to holders of Circuit City Group Common Stock. Net earnings attributed to the CarMax Group Common Stock reflect the remainder of the earnings of the company's CarMax business. For the quarter, net earnings attributed to the CarMax Group stock grew faster than total net earnings and net earnings per CarMax Group share because of the impact of last fiscal year's second quarter public offering of CarMax Group stock by Circuit City Stores, Inc. With the impact of last year's second quarter offering, 64.0 percent of the CarMax Group's first quarter fiscal 2003 earnings were allocated to the Circuit City Group. In last year's first quarter, 74.3 percent of CarMax Group earnings were allocated to the Circuit City Group. As previously announced, the company's board of directors has authorized management to initiate a process that would separate the CarMax auto superstore business from the Circuit City consumer electronics business through a tax-free transaction in which CarMax, Inc., presently a wholly owned subsidiary of Circuit City Stores, Inc., would become an independent, separately traded public company. Accordingly, CarMax, Inc. has filed a registration statement, including a preliminary proxy statement/prospectus with the Securities and Exchange Commission with regard to the transaction. The separation is expected to be completed by late summer, subject to shareholder approval and final approval by the board of directors. Circuit City Group ------------------ Sales: Total sales for the Circuit City Group increased 13 percent in the first quarter ended May 31, 2002, to $2.12 billion from $1.87 billion in the same period last year. Comparable store sales increased 12 percent. Net earnings: Excluding the earnings attributed to the reserved CarMax Group shares, the Circuit City business produced a loss of $1.3 million, or 1 cent per Circuit City Group share, in the first quarter ended May 31, 2002, compared with a loss of $9.6 million, or 5 cents per Circuit City Group share, for the same period last year. Including earnings attributed to the reserved CarMax Group shares, first quarter net earnings for the Circuit City Group were $17.5 million, or 8 cents per Circuit City Group share, compared with $10.1 million, or 5 cents per Circuit City Group share, in the first quarter of last year. The results for the quarters ended May 31, 2002, and May 31, 2001, were reduced by costs associated with remodeling and relocation of Circuit City Superstores. In the current year's first quarter, remodel and relocation costs totaled 2 cents per share. These costs related to the initial phases of rolling out a remodeled video department, which was completed in 18 stores, lighting upgrades in more than 100 stores and the relocation of two stores. In last year's first quarter, remodel and relocation costs totaled 1 cent per share and related to the relocation of one store. Exhibit 99.1 Page 2 of 13 CarMax Group ------------ Sales: Total sales for the CarMax Group rose 14 percent for the quarter ended May 31, 2002, to $1.00 billion from $879.0 million in the same period last year. Wholesale vehicle sales totaled $92.5 million, or 9.2 percent of net sales and operating revenues, in the first quarter of fiscal 2003, compared with $84.5 million, or 9.6 percent of net sales and operating revenues, in the same period last year. Comparable store sales reflect retail store sales only. CarMax anticipates meeting its first half expectations for comparable store used-unit growth in the low to mid-teens, most likely in the low teens. Comparable Store Sales Change ----------------------------- Three Months Ended May 31 ------------------------- 2002 2001 ---- ---- Vehicle units: Used vehicles 12 % 20% New vehicles (4)% 19% Total 10 % 20% Vehicle dollars: Used vehicles 14 % 28% New vehicles (4)% 23% Total 11 % 27% CarMax Group Earnings (Amounts in millions except per share data) Three Months Ended May 31 ------------------------- 2002 2001 ---- ---- CarMax Group net earnings. $ 29.2 $ 26.6 Net earnings attributed to the Circuit City Group stock $ 18.7 $ 19.7 Net earnings attributed to the CarMax Group stock $ 10.5 $ 6.8 CarMax Group diluted weighted average shares outstanding 38.8 27.7 Net earnings per CarMax Group share $ 0.27 $ 0.25 Net Earnings: CarMax Group first quarter fiscal 2003 net earnings rose 10 percent to $29.2 million from $26.6 million in the first quarter of last year. First quarter fiscal 2003 earnings include approximately $1.9 million, or 2 cents per CarMax Group share, of one-time, non-tax-deductible costs associated with the proposed separation of the CarMax business from Circuit City Stores, Inc. Excluding the one-time separation costs, net earnings increased 17 percent to $31.1 million. The company estimates that the separation costs will total approximately $8 million, or 8 cents per CarMax Group share, for the full year, with the remaining approximately $6 million cost expected to occur in this year's second quarter. In the first quarter of fiscal 2003, net earnings attributed to the CarMax Group Common Stock were $10.5 million compared with $6.8 million in the first quarter of last year. The remainder of the CarMax Group's net earnings is attributed to the shares of CarMax Group Common Stock reserved for the Circuit City Group or for issuance to the holders of Circuit City Group Common Stock. Net earnings per CarMax Group share, including the 2 cents Exhibit 99.1 Page 3 of 13 per share of one-time separation costs, rose to 27 cents from 25 cents. CarMax's first quarter earnings were consistent with its expectations for the first half of the fiscal year. Historically, second quarter earnings have been slightly higher than first quarter earnings. BUSINESS PERFORMANCE REVIEWS Circuit City Group Review ------------------------- "We are delighted with our broad-based first quarter sales improvement," said W. Alan McCollough, president and chief executive officer of Circuit City Stores, Inc. "We are pleased with our continued progress in both the high-service and packaged goods arenas. Not only did we post strong sales growth in focus categories such as video, including big-screen televisions, DVD players and digital satellite systems; and wireless communications, but we also reported substantially higher sales in our more self-serve product selections including DVD software and video game hardware, software and accessories. We experienced improving trends in information technology products, with PC sales growth driven by strong sales of notebook computers and a more competitive promotional stance compared with last fiscal year's first quarter. Our comparable store sales pace strengthened as the first quarter progressed, reflecting the growing consumer response to our customer service initiatives, aggressive promotions in traffic-building categories and on entry-level products and a stronger inventory position in specific product categories." The Circuit City Group's gross profit margin was 24.2 percent in the first quarter of fiscal 2003, compared with 24.7 percent for the same period in fiscal 2002. "The first quarter gross profit margin decline reflects our more competitive product selection and pricing throughout the quarter, as well as our response to more aggressive offers from competitors, and the resulting sales mix," said McCollough. "We have experienced some trade-off in gross margin for sales growth, as we chose to be more aggressive on promoting traffic-driving and entry-level products. We believe actions such as these, that bring customers into our stores to experience first-hand the improvements being made, will benefit our business over the long run." The first quarter expense ratio declined to 24.3 percent from 25.5 percent in the first quarter of fiscal 2002, principally as a result of the leverage achieved through increased sales. Pretax profits generated by the Circuit City finance operation, which are reported as reductions to selling, general and administrative expenses, were $20.4 million in the first quarter of fiscal 2003, compared with $29.5 million in the same period last fiscal year. The finance operation income does not include any allocation of indirect costs or any inter-company income. The decrease in the finance operation contribution resulted from a reduction in the gain on sale of receivables, as well as costs associated with a new public securitization completed during the current quarter. No new public securitizations were issued last year. The fiscal 2003 expense ratio also includes approximately $8.0 million of costs associated with remodeling and relocation activities, while the fiscal 2002 ratio includes approximately $3.0 million of relocation costs. Exhibit 99.1 Page 4 of 13 Expense Ratio - Impact of Remodeling and Relocation Costs --------------------------------------------------------- Three Months Ended May 31 ------------------------- 2002 2001 ---- ---- Circuit City business 23.9% 25.3% Remodel and relocation costs 0.4 0.2 ---- ---- Expense ratio 24.3% 25.5% "We are pleased with the improvement in our first quarter performance and remain comfortable that, including remodeling and relocation expenses, the Circuit City business will contribute 57 cents per share to 67 cents per share to the fiscal 2003 earnings of the Circuit City Group," McCollough said. "Excluding remodel and relocation expenses, we continue to expect the Circuit City business to contribute 75 cents per share to 85 cents per share to the fiscal 2003 earnings of the Circuit City Group." The Circuit City Group earnings also will include earnings attributed to the reserved CarMax Group shares. "We intend to remain competitive and to balance our sales growth with promotional activities throughout the fiscal year," said McCollough. "We will stay focused on initiatives that we believe are the keys to providing an optimal shopping experience for our customers. We are happy with the strides we have made on the customer service front thus far and remain committed to becoming the customer service leader in the consumer electronics industry." CarMax Group Review ------------------- Operating Ratios (a) -------------------- Three Months Ended May 31 ------------------------- 2002 2001 ---- ---- Net sales and operating revenues. 100.0% 100.0% Gross profit margin 11.8% 11.8% Expense ratio 6.8% 6.7% Operating profit margin (b) 4.9% 5.2% Net after-tax margin 2.9% 3.0% (a) Operating ratios have been recalculated to reflect the change in classification for wholesale revenues. (b) Operating profit margin equals earnings before interest and taxes as a percent of net sales and operating revenues. For the quarter, CarMax produced pretax earnings of $48.3 million, a 13 percent increase from $42.9 million in the first quarter of last year. First quarter pretax earnings excluding one-time separation costs of $1.9 million increased 17 percent to $50.2 million. "We achieved our average per unit gross profit targets on used cars," said W. Austin Ligon, president of CarMax. "However, the positive gross margin impact of a higher percentage of used cars in the mix was substantially offset by the higher average retails on used cars, which reduces the used-car gross margin on a percentage basis." The result was a gross profit margin of 11.8 percent, unchanged from last year's first quarter. Exhibit 99.1 Page 5 of 13 "The slightly higher expense ratio in this year's first quarter compared with last year's first quarter reflects expenses associated with our renewed geographic expansion and almost $2 million of one-time separation costs, partly offset by increased income from financing," said Ligon. CarMax Auto Finance delivered moderately higher income than CarMax had anticipated because its cost of funds in the first quarter was lower than expected. Income from the CarMax finance operation and income from third-party financing fees are recorded as reductions to selling, general and administrative expenses. Finance operation income does not include any allocation of indirect costs or any inter-company income. Pretax income from the CarMax finance operation was $19.8 million in the first quarter, compared with $15.7 million in last year's first quarter. Third-party financing fees in the first quarter were $4.2 million, compared with $3.8 million in last year's first quarter. "We continue to take share in our markets, demonstrating the effectiveness of the CarMax consumer offer," said Ligon. We are pleased that we have been able to renew our geographic growth with the objective of further increasing our returns for CarMax shareholders. Our three new stores continue to perform in line with our expectations and with the performance of our existing stores in other mid-sized markets." CarMax opened a new superstore and a new satellite superstore at the end of fiscal 2002 and one new superstore during the first quarter of fiscal 2003. CONFERENCE CALL INFORMATION Circuit City will host a conference call for investors today, June 18, 2002, at 2:30 p.m. ET to discuss this morning's announcement. Domestic investors may access the call at 1-888-809-8971 (passcode: Circuit City). International investors should dial 1-212-547-0373 (passcode: Circuit City). A live Web cast of the conference call will be available on the company's investor information home pages at http://investor.circuitcity.com and http://investor.carmax.com or at www.streetevents.com. The conference call will begin with a discussion of the CarMax results, followed by a discussion of the Circuit City results. A replay of the call will be available beginning at approximately 5:00 p.m. ET today and will run through midnight, June 25, 2002. Domestic investors may access the recording at 1-888-568-0403 and international investors at 1-402-530-7940. No access code is required. A replay of the call also will be available on the Circuit City and CarMax investor information home pages or at www.streetevents.com. ABOUT CIRCUIT CITY STORES, INC. Circuit City is a leading national retailer of brand-name consumer electronics, personal computers and entertainment software. CarMax is the nation's leading specialty retailer of used cars. With headquarters in Richmond, Va., Circuit City Stores, Inc. operates 603 Circuit City Superstores and 19 mall-based Circuit City Express stores, giving it more locations in more markets than any other consumer electronics specialty retailer. The company operates 40 CarMax retail units in 38 locations, including 36 used-car superstores. CarMax also operates 18 new-car franchises, 16 of which are integrated or co-located with Exhibit 99.1 Page 6 of 13 its used-car superstores. For more information, access the company's Web sites at www.circuitcity.com and www.carmax.com. FORWARD-LOOKING STATEMENTS This release contains forward-looking statements, which are subject to risks and uncertainties, including, but not limited to, risks associated with plans to separate the CarMax business from Circuit City Stores, Inc. and create an independent, separately traded public company. 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. SEC filings. Contacts: Ann Collier, Vice President of Financial and Public Relations, Circuit City Stores, Inc., (804) 527-4058; Celeste Gunter, Director of Circuit City Investor Relations, (804) 418-8237; Dandy Barrett, Director of CarMax Investor Relations, (804) 935-4591 Exhibit 99.1 Page 7 of 13 CIRCUIT CITY STORES, INC. ------------------------- CONSOLIDATED STATEMENTS OF EARNINGS ----------------------------------- THREE MONTHS ENDED MAY 31 (UNAUDITED) ------------------------------------- (Amounts in thousands except per share data) 2002 2001 ---- ---- NET SALES AND OPERATING REVENUES $ 3,119,807 $ 2,749,621 Cost of sales, buying and warehousing 2,488,554 2,183,268 ------------ ------------ GROSS PROFIT 631,253 566,353 ------------ ------------ Selling, general and administrative expenses 583,925 535,994 Interest expense 1,026 2,992 ------------ ------------ TOTAL EXPENSES 584,951 538,986 ------------ ------------ EARNINGS BEFORE INCOME TAXES 46,302 27,367 Provision for income taxes 18,320 10,400 ------------ ------------ NET EARNINGS $ 27,982 $ 16,967 ============ ============ Net earnings attributed to: Circuit City Group Common Stock $ 17,466 $ 10,135 ============= ============ CarMax Group Common Stock $ 10,516 $ 6,832 ============ ============ Weighted average common shares: Circuit City Group: Basic 206,710 204,936 ============ ============ Diluted 209,257 205,491 ============ ============ CarMax Group: Basic 36,962 25,934 ============ ============ Diluted 38,826 27,704 ============ ============ NET EARNINGS PER SHARE ATTRIBUTED TO: Circuit City Group: Basic $ 0.08 $ 0.05 ============ ============ Diluted $ 0.08 $ 0.05 ============ ============ CarMax Group: Basic $ 0.28 $ 0.26 ============ ============ Diluted $ 0.27 $ 0.25 ============ ============ Exhibit 99.1 Page 8 of 13 CIRCUIT CITY STORES, INC. ------------------------- CONSOLIDATED BALANCE SHEETS (UNAUDITED) --------------------------------------- (Amounts in thousands) May 31 ------ 2002 2001 ---- ---- ASSETS Current Assets: Cash and cash equivalents $ 1,176,002 $ 404,501 Net accounts receivable 201,208 241,506 Retained interests in securitized receivables 544,036 352,722 Inventory 1,742,485 1,731,833 Prepaid expenses and other current assets 36,538 68,913 ------------ ------------- Total Current Assets 3,700,269 2,799,475 Property and equipment, net 858,505 981,031 Deferred income taxes 6,785 - Other assets 31,537 34,241 ------------ ------------- TOTAL ASSETS $ 4,597,096 $ 3,814,747 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt $ 102,102 $ 132,414 Accounts payable 1,108,731 821,591 Short-term debt 10,855 2,840 Accrued expenses and other current liabilities 170,837 154,795 Accrued income taxes 21,207 - Deferred income taxes 140,503 99,967 ------------ ------------- Total Current Liabilities 1,554,235 1,211,607 Long-term debt, excluding current installments 113,734 115,836 Deferred revenue and other liabilities 156,694 94,454 Deferred income taxes - 13,527 ------------ ------------- TOTAL LIABILITIES 1,824,663 1,435,424 STOCKHOLDERS' EQUITY 2,772,433 2,379,323 ------------ ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,597,096 $ 3,814,747 ============ ============= Exhibit 99.1 Page 9 of 13 CIRCUIT CITY GROUP ------------------ STATEMENTS OF EARNINGS ---------------------- THREE MONTHS ENDED MAY 31 (UNAUDITED) ------------------------------------- (Amounts in thousands except per share data) 2002 2001 ---- ---- NET SALES AND OPERATING REVENUES $ 2,118,243 $ 1,870,621 Cost of sales, buying and warehousing 1,604,893 1,408,228 ----------- ----------- GROSS PROFIT 513,350 462,393 ----------- ----------- Selling, general and administrative expenses 515,375 477,444 Interest expense - 441 ----------- ----------- TOTAL EXPENSES 515,375 477,885 ----------- ----------- LOSS BEFORE INCOME TAXES AND INCOME ATTRIBUTED TO THE RESERVED CARMAX GROUP SHARES (2,025) (15,492) Income tax benefit (769) (5,887) ----------- ----------- LOSS BEFORE INCOME ATTRIBUTED TO THE RESERVED CARMAX GROUP SHARES $ (1,256) $ (9,605) Net earnings attributed to the reserved CarMax Group Shares $ 18,722 $ 19,740 ----------- ----------- NET EARNINGS $ 17,466 $ 10,135 =========== =========== Weighted average common shares: Basic 206,710 204,936 =========== =========== Diluted 209,257 205,491 =========== =========== NET EARNINGS PER SHARE: Basic $ 0.08 $ 0.05 =========== =========== Diluted $ 0.08 $ 0.05 =========== =========== Exhibit 99.1 Page 10 of 13 CIRCUIT CITY GROUP ------------------ BALANCE SHEETS (UNAUDITED) -------------------------- (Amounts in thousands) May 31 ------ 2002 2001 ---- ---- ASSETS Current Assets: Cash and cash equivalents $ 1,114,557 $ 393,986 Net accounts receivable 146,301 175,022 Retained interests in securitized receivables 416,176 254,530 Merchandise inventory 1,325,024 1,328,858 Prepaid expenses and other current assets 34,892 68,382 ------------ ----------- Total Current Assets 3,036,950 2,220,778 Property and equipment, net 712,933 789,516 Deferred income taxes 9,229 - Reserved CarMax Group Shares 331,198 311,701 Other assets 10,210 9,051 ------------ ----------- TOTAL ASSETS $ 4,100,520 $ 3,331,046 ============ =========== LIABILITIES AND GROUP EQUITY Current Liabilities: Current installments of allocated long-term debt $ 46,778 $ 11,428 Accounts payable 1,017,252 713,136 Allocated short-term debt 1,094 224 Accrued expenses and other current liabilities 148,143 135,230 Accrued income taxes 21,207 - Deferred income taxes 118,589 80,477 ------------ ----------- Total Current Liabilities 1,353,063 940,495 Allocated long-term debt, excluding current installments 13,734 22,906 Deferred revenue and other liabilities 147,508 87,600 Deferred income taxes - 9,954 ------------ ----------- TOTAL LIABILITIES 1,514,305 1,060,955 GROUP EQUITY 2,586,215 2,270,091 ------------ ----------- TOTAL LIABILITIES AND GROUP EQUITY $ 4,100,520 $ 3,331,046 ============ =========== Exhibit 99.1 Page 11 of 13 CARMAX GROUP ------------ STATEMENTS OF EARNINGS ---------------------- THREE MONTHS ENDED MAY 31 (UNAUDITED) ------------------------------------- (Amounts in thousands except per share data) 2002 2001 ---- ---- NET SALES AND OPERATING REVENUES $ 1,001,564 $ 879,000 Cost of sales 883,661 775,040 ------------ ----------- GROSS PROFIT 117,903 103,960 ------------ ----------- Selling, general and administrative expenses 68,550 58,550 Interest expense 1,026 2,551 ------------ ----------- TOTAL EXPENSES 69,576 61,101 ------------ ----------- EARNINGS BEFORE INCOME TAXES 48,327 42,859 Provision for income taxes 19,089 16,287 ------------ ----------- NET EARNINGS $ 29,238 $ 26,572 ============ =========== Net earnings attributed to: Circuit City Group Common Stock $ 18,722 $ 19,740 ============ =========== CarMax Group Common Stock $ 10,516 $ 6,832 ============ =========== Weighted average common shares: Basic 36,962 25,934 ============ =========== Diluted 38,826 27,704 ============ =========== NET EARNINGS PER SHARE: Basic $ 0.28 $ 0.26 ============ =========== Diluted $ 0.27 $ 0.25 ============ =========== Exhibit 99.1 Page 12 of 13 CARMAX GROUP ------------ BALANCE SHEETS (UNAUDITED) -------------------------- (Amounts in thousands) May 31 ------ 2002 2001 ---- ---- ASSETS Current Assets: Cash and cash equivalents $ 61,445 $ 10,515 Net accounts receivable 54,907 66,484 Retained interests in securitized receivables 127,860 98,192 Inventory 417,461 402,975 Prepaid expenses and other current assets 1,646 531 --------- --------- Total Current Assets 663,319 578,697 Property and equipment, net 145,572 191,515 Other assets 21,327 25,190 --------- --------- TOTAL ASSETS $ 830,218 $ 795,402 ========= ========= LIABILITIES AND GROUP EQUITY Current Liabilities: Current installments of allocated long-term debt $ 55,324 $ 120,986 Accounts payable 91,479 108,455 Allocated short-term debt 9,761 2,616 Accrued expenses and other current liabilities 22,694 19,565 Deferred income taxes 21,914 19,490 --------- --------- Total Current Liabilities 201,172 271,112 Allocated long-term debt, excluding current installments 100,000 92,930 Deferred revenue and other liabilities 9,186 6,854 Deferred income taxes 2,444 3,573 --------- --------- TOTAL LIABILITIES 312,802 374,469 GROUP EQUITY 517,416 420,933 --------- --------- TOTAL LIABILITIES AND GROUP EQUITY $ 830,218 $ 795,402 ========= ========= Exhibit 99.1 Page 13 of 13