1. MEMORANDUM
To: Michael Duckworth, Alan Tuchman and Marc Fierman
From: George Campagna
Date: June 19, 2008
Re: Circuit City Q1 2009 Results
On Thursday, June 19, Circuit City announced its First Quarter 2009 results for the three months ended
May 31, 2008. The following summarizes positive and negative highlights from Circuit City Store, Inc.
Earnings release and Conference call.
1st Quarter Financial Results
• Net sales decreased 7.4 % to $2.3B from $2.5B in the prior year with consolidated comparable store
sales decreasing 11.3 %.
• Consolidated gross profit margin was 20.8% in the 1st quarter compared with 22.5 % for the 1st
quarter last year.
• SG & A expenses were 27.8% of net sales in 1st quarter compared with 26.1% of net sales in last
year’s 1st quarter.
• Net loss of $164M compared with a net loss of $54M for the 1st quarter last year
• At May 31, 2008 Circuit City had cash, cash equivalents and short term investments of $92M
compared with $364M at May 31, 2007. The $272M year-over-year decline in the cash position
primarily reflects purchases of property and equipment and cash used in operations
• At May 31, 2008 Circuit City had $73M in long term debt, primarily related to capital leases and $55M
in short term debt under the asset based credit facility
• Circuit City’s revolving Credit Facility is secured by inventory and credit card receivables. The facility
has a stated commitment of $1.3B. In general, the maximum amount of borrowings including loans
and outstanding letters of credit may not exceed the lesser of a borrowing base calculated as a
percentage of the company’s eligible inventory and credit card receivables.
• At February 29, 2008 Circuit City had cash, cash equivalents and short term investments of $297M
• Therefore, In the 1st quarter
• Cash, cash equivalents, and short term investments declined by approximately $205M
• Capital expenditures, net of landlord reimbursements, totaled $38M
• Total Debt increased from $68M to $128M
• Circuit City’s revolving Credit Facility is secured by inventory and credit card receivables. The facility
has a stated commitment of $1.3B.
Conference Call and Press Release Quotes
Phillip Schnoonover, CEO
 Very pleased to report that Circuit City’s first quarter results were above guidance and the
company is on track to deliver its financial guidance for the year.
 Wishes to remain cautious regarding the outlook for the remainder of the year due to
uncertainties about the macroeconomic climate.
 We are on the right track with the right strategies…to execute a successful turnaround and
position us for long term profitable growth
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2. John Harlow, C.O.O.
 Continues to stress importance of rebuilding a “Selling Culture” to be more sensitive to customer
needs and educate on products, focusing on home entertainment.
 Customer satisfaction, measured through third party “mystery shops” and customer first scores.
Mystery shop scores improved 2.5%, and customer first scores are at a three year high.
 Admittedly, we have further to go in improving our customer service but I am encouraged by the
significant progress we have made.
Bruce Besanko, C.F.O.
 Net sales decrease of 7.4% explained mainly by domestic comp store sales decline of 12.2%
 Greatest sales growth in large LCD televisions, followed by video gaming products and analog to
digital converters
 Weakness across most other categories including other television technologies, information
technology, audio, and music and movies
 Comparable store sales of video gaming products increased by double digits. Comparable store
sales of video software and music software declined by double digits.
 Firedog PC Services and home theater installation revenues decreased 16%
 International Sales increased 23.6% primarily reflecting the favorable impact of foreign currency
exchange rates and a comparable store sales increase of 10.5% in local currency
 $164M net loss was better than guidance
 We believe we have sufficient liquidity to sustain our multi-quarter turnaround plan.
 We ended the quarter with $55M in borrowings under our amended credit facility. This was less
than we had originally planned. We expect to borrow as we build inventory for the holiday season
but by the end of the third quarter we should not have any borrowings except for the usual third
quarter borrowings for InterTAN (Canadian segment)
 In addition to availability under the asset backed facility we expect to generate approximately
$80M from an income tax refund in the third quarter. With respect to InterTAN, the board has not
determined a course of action, but the sale of InterTAN could add to our cash balances at the
close of this year.
 We’ve eliminated the dividend which this year will conserve about $20M in cash and $26M
annually
Looking ahead to 2nd Quarter of fiscal 2009 (from First Quarter Results Press Release)
• Company expects to record a loss of from continuing operations before taxes of
$ 170M to $185M, compared with a loss of $ 128.2M in prior second quarter. While the expected loss
is larger than the prior year period, the year-over-year increase in the loss is significantly smaller than
the increase in the first quarter loss. The primary driver of the difference in expected second quarter
results from actual first quarter results is higher expenses associated with more store openings.
Fiscal Year 2009 Outlook
• Consolidated net sales relatively unchanged from prior year
• A mid single digit domestic segment comparable store sales decline
• Improvement in earnings from continuing operations before taxes as a percentage if consolidated net
sales
• Capital expenditures $ 120 million to $140M, down from original projections of $130M-$150M
• 45 to 55 domestic Superstore openings, including 6 to 8 relocations.
• Due to operating improvements, traction against current sales and gross margin driving initiatives and
more favorable year-over-year comparisons, the company expects a gradual recovery in the second
half of 2009. The company expects year-over-year improvements in operating results beginning in
the third quarter and improved pre-tax profit from continuing operations in the fourth quarter as
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3. compared to fiscal 2008 results. The company
believes that it has adequate cash and borrowing capacity to complete the next phase of the
turnaround plan.
Fiscal Year outlook based on the following assumptions:
• A continuation of current operating trends through the first half of the year, with improvement in the
second half.
• A continuation of weak macroeconomic trends in first half of the year.
• Improved retail execution leading to higher close rates and improved basket, offsetting a decline in
store traffic
• Sales Growth in key product areas including LCD televisions, notebook computers and video gaming
products offset by declines in projection and tube televisions, desktop computers and portable audio
products
• Improvements in merchandise margins, shrink and markdowns
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