Circuit City Pulls Plug on Guidance

Circuit City's gross profit margin fell to 22.5% from 24.5% a year earlier. The company attributed the decline to a decrease in warranty sales and a greater mix toward lower-margin PC hardware sales.

The results come a day after larger rival Best Buy(BBY Quote) posted a surprise drop in first-quarter earnings amid an increase in sales of lower-margin products.

"While I am disappointed with the large net loss for the first quarter, we met our revised guidance while up against our toughest comparable store sales increase comparison of this fiscal year," said Philip Schoonover, Circuit City's chairman, president and chief executive. "We made significant and substantial changes to improve Circuit City and position the company to compete while facing economic uncertainty in the near term and new realities in the consumer electronics marketplace over the longer term."

Circuit City said it expects continued volatility in its results in the near term because of new systems that it plans to roll out this summer.

The company is installing new merchandising and marketing systems as part of a broader structural change to address slumping sales. Among these restructuring moves was a plan announced in March to lay off 3,400 employees and replace them with lower-paid workers.

Circuit City said its new retail operating platforms, combined with an uncertain macroeconomic environment, led it to pull its financial forecast for the year. Previously, the company projected that fiscal 2008 earnings from continuing operations before income taxes as a percentage of sales would be 1.4% to 1.8%.