Circuit City Stores, Inc. announced plans to sell the bankcard portion of its finance operation and updated investors on quarter-to-date sales results.
"The bankcard operation, while profitable during favorable economic cycles, is not key to Circuit City's long-term growth plans," said W. Alan McCollough, chairman, president, and chief executive officer of Circuit City Stores, Inc. "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 non-prime accounts and that we have experienced in recent periods. 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."
Given the characteristics of the company's bankcard portfolio and current market conditions, the company expects to incur an after-tax charge of up to U.S. $200 million, or $0.96 per share, to exit this business. The company expects to recognize a majority of the charge in the quarter ending Aug. 31, 2003 to, among other items, reduce the carrying value of its interest in the bankcard portfolio to reflect the estimated net proceeds of the sale. The company expects to treat the bankcard operation as a discontinued business on the consolidated financial statements for the quarter ending Aug. 31, 2003. The company anticipates that the sale of the bankcard business will generate cash in excess of $190 million.
The company also announced that comparable store sales for the first two months of the second quarter declined 8 percent. The quarter ends Aug. 31, 2003, and the company expects to report sales for the full quarter on Sept. 5, 2003.
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