Circuit City Stores Cuts Outlook, Plans Spinoff
Circuit City Stores Inc. warned that fourth-quarter earnings for its retailing operations will miss Wall Street expectations and said it planned to spin off its profitable CarMax division.
The announcement sent Circuit City shares plummeting $7.04, or 30%, to $16.55 on the New York Stock Exchange. CarMax currently trades as a tracking stock designed to reflect the used car seller’s performance. Its shares fell $3.16, or 11%, to $25.35 on the NYSE.
The company said a spinoff of CarMax into a separate company would enable investors to analyze each business on its own merits. In recent years, strong CarMax earnings often masked losses at the Circuit City stores.
The company said it now expects Circuit City Group to achieve earnings of 70 cents to 74 cents for the quarter ending Feb. 28, rather than the 75 cents analysts expected. It cited disappointing sales so far this year, largely because inventory of such items as camcorders was too low to meet demand.
The plan to spin off CarMax, which is subject to shareholder approval, would give investors one share of the new CarMax company stock for each share they hold of the CarMax tracking stock. Holders of Circuit City stock would get about one-third of a share of CarMax stock for each share of Circuit City stock. The plan is subject to shareholder approval.
