Two weeks ago, we got to see a glimpse of Circuit City's (NYSE:CC) second-quarter numbers when the electronics retailer preannounced that sales had ticked up nearly 9% to $2.35 billion. Today, the rest of the picture was unveiled, revealing that last year's $129.6 million, or $0.63, loss had been pared back to only an $11.9 million shortfall. The $0.06 loss was a nickel slimmer than estimates and pleased investors, who sent shares 5% higher in morning trading.
While the bottom-line improvement looks good on paper, it is primarily the result of a $90.3 million writedown related to the sale of Circuit City's bank-card operations to FleetBoston, which weighed heavily on last year's second-quarter results. Nevertheless, net losses from continuing operations narrowed 71% to $11.4 million, from $39.3 million last year.
Sales benefited from a new international segment -- essentially Canadian electronics firm InterTAN, acquired in May -- which added $117.8 million in revenues and added modestly ($0.02) to earnings. Same-store sales rose 2.9%, slightly below the 4.3% delivered by archrival (and Motley Fool Stock Advisor recommendation) Best Buy (NYSE:BBY), though comps for both companies came in below target.
Management cited better penetration rates for extended warranties -- which rose 18% to $91.7 million -- as being a bright spot for the quarter. These higher margin sales, combined with InterTAN's business, increased distribution efficiencies, and an accounting shift in the way credit revenues are booked, all helped gross margins expand 200 basis points to 24.6%
Poor store location continues to hold Circuit City back, relative to Best Buy, but progress is being made. Forty-eight stores have been relocated to higher-traffic areas, and management is anticipating opening 60 superstores (half of them relocations) this fiscal year.
Circuit City is headed in the right direction: Margins have improved; selling, general, and administrative expenses have been trimmed; there is 50% more cash on the balance sheet thanks to the divestiture of finance operations; and a "store revitalization program" is yielding good results. Furthermore, a major ally in Verizon (NYSE:VZ) has been added to the team, and just last week the switch was flipped on a revamped website with a broader product line. Clearly, the company is making strides, but with the stock trading at two-year highs, now may not be the most opportune time to jump in.
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Fool contributor Nathan Slaughter owns none of the companies mentioned.
