Updated from 10:36 a.m. EDT
announced Tuesday it would abandon its sluggish appliance business, concentrating instead on electronics and home office products, as part of a realignment bid that will lead to the loss of 1,000 jobs.
The three-year strategy, which calls for discontinuing sales of major appliances and remodeling virtually all of the company's 573 superstores, is crafted to boost sales over the long-term. But the changes, Circuit City warned, will depress earnings in both the second and third quarters of this year.
Even after excluding restructuring costs, second-quarter profit would fall well below Wall Street's expectations, mainly because of slumping appliance sales, the Richmond, Va.-based company said.
Circuit City anticipated second-quarter earnings of 32 cents a share, before one-time charges of $30 million, down from 35 cents a share from last year. Analysts polled by
First Call/Thomson Financial
, meanwhile, had predicted earnings of 43 cents a share.
In the announcement, Circuit City offered a brighter prognosis for the fourth quarter, but news of the restructuring rattled investors Tuesday, driving Circuit City's shares down 6 3/8, nearly 20%, to 26 1/4.
Sustained strength in the sales of electronics and home office supplies, the company said, contrasted sharply with the slow growth recently in the appliance sector. The widening gap, Circuit City added, hastened the decision to yank appliances from the stores.
Each Circuit City store will be remodeled for a cost of $2.5 million, but if successful, the changes could breathe new life into the company's prospects, boosting sales at each site by roughly 30%, the company said.
Sales of appliances made up nearly 14% of total sales last year, "but its profitability was below average," Circuit City's president and chief executive, W. Alan McCollough, said in a statement.
The remodeling of central and south Florida stores already under way is expected to cost $15 million before taxes and lower second-quarter earnings by 3 cents a share and third-quarter profit by 2 cents.
Circuit City, which operates 43 mall-based shops in addition to its superstores, expects that earnings in the fourth quarter will reflect the new emphasis on the more profitable consumer electronics and home office products.
The company anticipates a more prosperous future, with fourth-quarter earnings of 98 cents a share and fiscal year earnings -- including the one-time charges -- of $1.60 a share. That figure, though, is still below analysts' estimates of $1.99 a share.
Meanwhile, fellow retailer
is suffering through rough times of its own as it
announced an earnings warning and restructuring plan Tuesday morning.