Divx still can't get funding. They may cut the promotion. It could die.......................................................
Circuit City seeks investors for Divx / Top executive warns of earnings cut
RETAIL
Tuesday, September 1, 1998
BY GREGORY J. GILLIGAN
Times-Dispatch Staff Writer
Circuit City Stores Inc.'s new Divx digital video disc system could become more of a drag on earnings later in the current fiscal year if additional financing isn't in place.
The Richmond-based chain had hoped to line up more funding for Divx before its national rollout -- now slated for late September -- to help pay to promote and market it.
But while Circuit City continues to talk with potential investors, none has come on board yet.
The chain's top executive warned Wall Street yesterday earnings could be reduced by about 45 cents per share in the second half without the additional funding. And, he said, the marketing budget for Divx would be
cut by about 40 percent, too.
"We will attempt to find a financing structure that we believe is appropriate and recognizes the prospect for this business," Richard L. Sharp, Circuit City's chairman and chief executive officer, told analysts in a conference call yesterday.
"We haven't gotten a written formal offer, but the discussion with
the people who have indicated interest, we have not found attractive," Sharp said.
Despite the not-so-rosy forecast for Divx, Sharp said he expects second-quarter earnings to be in line with Wall Street estimates largely thanks to a strong performance in the retailer's core consumer electronics business. Overall profit, after figuring in the losses at CarMax and Divx, should be up 15 percent compared with a year ago.
The second quarter didn't end until yesterday, and Circuit City seldom gives guidance to analysts and
investors on earnings before a quarter is completed.
But Sharp said the company felt compelled to do so because the retailer's stock has taken a nose-dive in the past two months. It has lost 25 percent of its value just in the past week, and 44 percent of its value since mid-July.
Circuit City shares were down $3.3125 yesterday in heavy trading, falling about 9 percent to close at $30.875 on the New York Stock Exchange.
"Given the volatility of the stock recently and the rumors reacting significantly to it, we thought we needed to give some guidance," Sharp said.
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