disclosed plans to sell the bank-card portion of its finance operation and said it expects to record a charge of up to $200 million, or 96 cents a share, to exit the business.
The company also said same-store sales for the first two months of the second quarter declined 8%. The quarter ends Aug. 31, and Circuit City expects to report sales for the full quarter on Sept. 5.
The bank-card operation isn't key to Circuit City's long-term growth plans, the company said in a press release.
"We believe that a sale to another entity, which could derive value from this type of operation, would enable us to avoid the large cyclical profit swings that are inherent in finance operations serving primarily nonprime accounts and that we have experienced in recent periods," the company said. "Equally important, we believe the sale of the operation would increase our financial flexibility by eliminating the use of cash to finance such an operation."
Circuit City plans to record the majority of the expected charge in the quarter ending Aug. 31. The sale of the bank-card business should generate cash in excess of $190 million.
The company hired Banc of America Securities to assist with the disposal of the bank-card operation. The business includes about $1.5 billion of the roughly $3 billion of credit card receivables managed by Circuit City's finance operation. The remaining receivables are related to the company's private-label credit operation, which includes the store credit card and the co-branded Visa credit card.
Circuit City said it's disappointed with its sales through the first two months of the quarter.
"We have seen strength in personal computer sales as we enter the back-to-school season, as well as printer sales, which reflect both the digital imaging and back-to-school trends," the company said. "Despite these trends, we also have experienced slight year-over-year traffic declines during the quarter."