Don’t Fall For Circuit City’s (CC) Results

The devil is always in the details……..

Circuit City (CC) reported fiscal fourth quarter (Feb.) earnings of $0.10 per share, excluding non-recurring items, $0.17 better than the First Call consensus that called for a loss of $0.07. Revenues fell 7.7% year-over-year to $3.65 billion versus the $3.79 billion consensus estimate. GAAP EPS was $.03 a share vs a loss vs $.04 last year. Great right? Look closer….

I like to look at the results from “continuing operations”. It gives me the best snapshot as to the health of the operating business before the accountants and tax collectors get in there and muddle the picture. That being said, in 2007 CC posted a Q4 profit if $27 million from operations. But, in the same quarter of 2008, that plummeted to a LOSS of $2.7 million. So, how did CC then post a profit in its press release?

“For the fourth quarter of fiscal 2008, the company recorded an income tax benefit of $7.3 million. For the fourth quarter of fiscal 2007, income tax expense was $34.3 million.”

There you have it, the reason for both the loss last years and this years gains. The illusion is that last year was worse than this but the reality is the opposite. Operations have deteriorated markedly with same store sales plummeting 11%, margins shrinking and results from operations decimated. Yet, due to a nifty tax benefit, results look nice to the naked eye…

The bottom line is despite what management may say, operationally, the company is deteriorating, fast.

Here is a pdf of the full release:

Disclosure (“none” means no position):None