Circuit City Posts Profit in Quarter

Circuit City Stores Inc. said Monday that it had a $6.4-million profit in its fiscal first quarter after selling more high-end televisions and digital music players.

Profit was 4 cents a share, contrasted with a loss of $13.1 million, or 7 cents, a year earlier, topping analyst estimates. Sales for the quarter ended May 31 climbed 17% to $2.62 billion, Richmond, Va.-based Circuit City said. That was its biggest gain in more than six years.

Shares fell after Circuit City said gross margin, the percentage of sales a company earns after subtracting the cost of goods sold, narrowed to 24.47% from 25.04% as higher interest rates lifted the cost of offering promotional financing. Some analysts noted that the company didn’t raise its forecast for the rest of the year, suggesting consumer concerns. The thinner margin overshadowed the 15% gain in same-store sales as flat-panel TV sales doubled.

“We continue to believe that Circuit City will benefit from strong flat-panel TV sales as more consumers adopt the technology,” Prudential Equity Group analyst Mark Rowen said. “However, long-term, we remain concerned about the company’s cost structure as consumer electronics increasingly becomes commoditized by more efficient retailers.”

Chief Executive Philip Schoonover said that although he was “concerned” about high energy prices, rising interest rates, the slowing housing market and waning consumer confidence, he had yet to see a material effect.

The company reiterated its forecast for fiscal 2007 net sales growth of 7% to 11%. Sales at stores open at least a year may rise as much as 7%, Circuit City said.

Circuit City shares lost 85 cents, or 2.9%, to $28.63. They gained 31% this year before Monday.