Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Phil Schoonover - President, CEO

Danny Clark – President, Retail Stores

Mike Foss - CFO

Bill Cimino - IR

Analysts

Bill Sims - Citigroup

Dan Binder - Buckingham Research

Michael Baker - Deutsche Bank

Danielle Fox - Merrill Lynch

Timothy Allen - Jefferies

Colin McGranahan - Sanford Bernstein

Matt Fassler - Goldman Sachs

Greg Melich - Morgan Stanley

Alan Rifkin - Lehman Brothers

Mitch Kaiser - Piper Jaffray

Steve Chick – JP Morgan

TRANSCRIPT SPONSOR
Better Than AdSense

Circuit City Stores, Inc. (CC) F4Q07 Earnings Call April 4, 2007 11:30 AM ET

Operator

At this time I would like to welcome everyone to the Circuit City fourth quarter and fiscal year 2007 results conference call. (Operator Instructions) Mr. Bill Cimino, Director of Corporate Communications, you may begin your conference.

Bill Cimino

Thank you and good morning. We appreciate your participation in today's call. I need to remind you that during the call we may make some forward-looking statements which are subject to risks and uncertainties. We refer you to today's release, the MD&A on our annual report on Form 10-K and to our other SEC filings for additional discussion of these risks and uncertainties.

Speaking on this call are Phil Schoonover, Chairman, President, and Chief Executive Officer; Danny Clark, Executive Vice President of Multichannel Sales; and Mike Foss our Chief Financial Officer. Dave Matthews, Executive Vice President of Merchandising Services and Marketing, is on the road and unable to join us on today's call.

Before I turn the call over to Phil, I want to provide some housekeeping information to help with clarity on today's call. Our results for the fourth quarter and fiscal year ended February 28th, 2007 include $145 million in pre-tax charges associated with the previously announced impairment of goodwill, store and facility closures, and other restructuring activities as well as the classification of Rogers as discontinued operations. Excluding these charges and the classification, our earnings from continuing operations before income taxes, or EBIT, would have been 1.3% of sales which was within our fiscal 2007 guidance of 1.2% to 1.4%. A reconciliation of this measure to earnings from continuing operations before income taxes as a percentage of consolidated net sales calculated in accordance with GAAP is included on our investor information web page at investor.circuitcity.com.

With that I'll turn the call over to Phil.

TRANSCRIPT SPONSOR

Better Than AdSense

What if there was a way to promote your company to a perfectly targeted group of potential customers, partners, acquirers and investors? What if you could tailor your pitch to them at the moment of maximum interest? And what if you could do this for a no-brainer price?

This is exactly what Seeking Alpha is offering with transcript sponsorships.

Seven types of companies are sponsoring earnings transcripts on Seeking Alpha:

1. Company sponsors its own earnings call transcript (example).

2. Company sponsors partner's transcript (example).

3. Company sponsors competitor's transcript (example).

4. Issuer-sponsored research firm sponsors client's transcript (example).

5. Investment newsletter sponsors transcripts of successful stock picks (example).

6. IR firm sponsors transcript of micro-cap company (example).

7. Consulting company sponsors company's transcript in sector of interest (example).

Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details.

Phil Schoonover

Thanks, Bill and good morning. Thank you all for joining our call this morning. Today I'll discuss the performance of the business in the fourth quarter and fiscal year, our transformation journey, some milestones we plan to accomplish in the upcoming year and provide you on an update for our search for a new CFO.

Before I get to our results, let me say a few things about our transformation journey. We began a process of transformation in Circuit City 30 months ago. We are committed to the vision we have laid out for Circuit City to better serve our customers, associates, and shareholders and we have a plan to transform Circuit City. We began this process with a long-term strategy, developed our north star and have our compass framework to guide our decisions.

We see enormous opportunities with the four pillars of our strategy: to win in home entertainment, grow our services business, leverage the shift to multichannel retailing, and significantly improve our real estate position.

When we began this journey, we had assumptions about the growth of the flat panel TV business and how quickly it would commoditize. The pricing in television declined a year faster than we had expected and the resulting change impacted many parts of our business in the third and fourth quarters. Seeing the TV business model changes -- along with strong competition from traditional consumer electronics retailers as well as new entrants -- we began moving with increased urgency to identify revenue and growth opportunities, gross margin rate improvements, and SG&A efficiency opportunities in order to rebuild reasonable profitability.

We also needed to ensure that Circuit City caught up to retail industry best practices with our merchandising and retail transformation efforts. I would characterize these efforts not as a change in our plan or strategy, but rather an acceleration of our overall transformation plan, given the rapid changes to our marketplace.

Last week we announced the reduction from ten retail operating regions to eight; the potential sale of InterTAN; outsourcing of our IT infrastructure to IBM; and actions with 3,400 associates.

Let me say a few words on the decision with our associates because it's generated some media attention. Through our work to improve our retail standard operating procedures, we identified a lack of discipline in managing our wages and rates. Since we had not been managing our pay levels on an ongoing basis, our actions were significant. I acknowledge that this decision was difficult and painful to the people who were impacted. These changes are not easy and required some tough judgment calls. However, we are not competitive, we will have to make these changes.

We treated these associates with respect, providing them with severance and being honest with them about the reasons why the move was necessary. To build the competitive organization of the future, we will be making additional changes. These changes are sometimes difficult, which will require the balance of all of our stakeholders. They require us to make some tough calls. These changes include reducing spans of control and layers of management throughout the enterprise to ensure that our front line associates are empowered to do their work; instituting more discipline and expense controls around purchasing, travel, consultants, and many other forms of discretionary spending; identifying overlapping functions that can be combined to drive efficiency and prioritizing so we can eliminate entire pieces of work.

Retailing in general – and the consumer electronics retailing in particular -- is extremely competitive. With the permanent changes to the business model, we must move with urgency to develop a world class retail platform. I'm confident that we're on the right path to create a future for the more than 40,000 associates who work for Circuit City to provide our customers with competitive pricing on the products and services we sell, and to deliver increased shareholder value.

At the same time, all of these changes are in the context of building for the future. As an example, we're investing in growth areas like FireDog services where we've added thousands of associates, and Circuit City Direct business, where we've added hundreds of associates and we are creating opportunities where associates can grow and prosper with us.

Now, let me turn to the future and the full year. As you've seen from our press release, our domestic sales growth was 1.3%. Excluding charges for earnings before taxes it was 1.3%. Though we continued to see strong double-digit growth in advanced TVs, we also saw significant acceleration of decline in the sales of tube and projection TVs, which more than offset the growth in flat panel.

The industry also had the transition to Microsoft Windows Vista. We intentionally ran lean on inventory in anticipation of this change, and lost some revenues for PCs in January. We protected the company's margin rate in the categories by limiting the downside of liquidating computers not loaded with Vista.

For the year overall, we did not give up our customers to our competition. We steadily increased our consumer electronics market share compared with last year, according to Trackline Data. We reached $1 billion in web originated sales, growing more than 50% for the year while making structural changes to become a true multichannel retailer.

During the second half of the year, we successfully launched our FireDog brand, covering both PC services and home theater installation, and grew our services revenue by nearly 80% for the year. We opened 35 stores and built a pipeline for between 60 and 65 store openings for fiscal year '08. We freed up cash by reducing our domestic net-owned inventory by $88 million and we returned approximately $250 billion to our shareholders through stock repurchases and increasing our dividend.

Let me provide additional details about our plan. Despite the significant progress with our transformation, we must move with more urgency to expand revenues, gross margins and reduce SG&A. We are taking the necessary steps to rebuild our operating platform using best-in-class standards so we can improve customer service with a competitive cost structure.

Some of the key points on our acceleration plan include reorganizing and streamlining the senior leadership team around delivering a seamless multichannel customer experience; instituting our new retail standard operating procedure to better engage and free up associates to serve customers, including new tools and training; better leveraging the basket opportunity in store, on the web and in our call centers; optimizing our assortments and improving our direct sourcing efforts; re-engineering our supply chain to increase our customer encountered in-stock while reducing the company's net owned inventory; continuing to build out our strategy with our services platform for FireDog and closing underperforming stores in the U.S.

With outsourcing our IT infrastructure operation to IBM, the benefits of this action will be threefold. First, it will reduce our planned infrastructure cost by approximately 16% over the life of the contract. Second, we will get some incremental financial benefits related to retail point of sale and merchandising system transformation with this IBM outsourcing. Third, IBM will provide additional strategic support to assist our transformation effort. Combined, we will have a lower total cost of ownership while receiving high quality execution and global practice insight from IBM. Our goal to drive more competitive SG&A will allow us to gain profitability while investing in areas to grow.

Before I move on, I want to discuss InterTAN. We are pleased with the progress we are making in the transformation of our Canadian business. We recognize that a lot of hard work remains. To ensure that we are maximizing shareholder return, we engaged Goldman Sachs to assist in exploring strategic alternatives, including a possible sale of that business.

Now for a look to our future. Looking to fiscal 2008, we will focus on our strategy and our transformation journey. Frankly, we've seen macroeconomic headwinds, including higher energy prices, slower housing sales, impact of the volatility in subprime lending rates and declining consumer confidence that we believe -- in combination with our internal changes -- will contribute to a significant loss in the first half. Keep in mind that our sales and profits are derived predominantly in the second half of the year and we will use the first half to get our changes behind us and stabilize the business in order to be prepared for the all important holiday selling season. Accordingly, we will front load the physical and operational changes to our stores and their associates and we will expense these in the first half.

Ultimately, we will remain focused on our long-term strategy, our north star, and building upon the four strategic growth pillars.

First the growth pillar of home entertainment. There's quite a range of industry views about the rate of growth in total TV sales from 2006 to 2010. They generally predict from 2% to 6% annual dollar growth rate in this period. Given the ASP declines expected over the next three years, there will be significant unit growth of TVs. It gives us a great opportunity in attaching the complete solution through the ramp-up of FireDog home theater installations, digital services like digital cable and high definition satellite, other cables and power and other accessories, furniture and brackets, City Advantage extended service plans, and our financing programs. We will use GAAP management and focus on creating a better multichannel experience to increase revenue per transaction and margin per transaction.

Second, in multichannel, Forrester forecasts online CE sales to grow by 16% on average for the next three years. We reached $1.12 billion in fiscal year '07 with web and call center sales and we expect the business to grow 30% to 40% in fiscal year '08.

Third, digital home services, the total market opportunity for home theater installation and consumer PC-related services is expected to reach $20 billion annually by the year 2010. We started offering PC services about two years ago and launched the FireDog brand last October, so we've gone from essentially nothing to sales of more than $200 million over two short years. We expect the sales to approximately double in fiscal year '08 to more than $400 million and are ramping up for major growth in future years. While the revenue from FireDog is still relatively small, because of its strong margin it will be a significant driver of our profit in fiscal year '08.

Fourth, real estate and concept development opportunity. We continue to right size our latest retail concepts for today's multichannel shopping experience and tomorrow's assortment trends. With up to 200 new and relocated stores coming online between fiscal 2007 and 2009, we have an opportunity to drive a significant amount of incremental revenue and profit as well as upgrade our brand image in the marketplace.

Let me review our high level financial guidance for fiscal year '08. Driven by the transformation efforts in retail and marketing and our growth strategy, we expect to see consolidated net sales growth of 5% to 8%, domestic comp store sales of 3% to 5%, and earnings before taxes as a percentage of sales between 1.4% and 1.8%.

Finally, let me quickly update you on our CFO search. We've hired a boutique CFO search firm, Peter Crist & Associates, specializing in CFO searches. The search is going well and we have several candidates that have already been identified. We expect to begin the interview process shortly. I'm looking for a CFO who will complement the strengths of our existing management team and help me drive the transformation that we are undertaking. I want to find the right person and I will take whatever time necessary to find the right fit. In the meantime, Phil Dunn, our Senior VP, Controller and Treasurer will assist in leading the finance team. Mike will oversee the 10-K process and will continue to support the company as a member of our Board of Directors through June.

This is an exciting time in our transformation journey. We are committed to better serving our customers, our associates, and our shareholders and we will adjust our plans to act on the trends in our business.

Now Danny Clark will speak for a moment on the retail transformation.

Danny Clark

Thanks. As you heard Bill mention earlier, we have aligned our direct call center and retail stores to better meet the needs of customers while improving efficiencies and results. The recent alignment changes we've announced will enable our unique channels to optimize the customer experience and more quickly adapt to changing market conditions. This team is accountable for collaboration, acceleration of key initiatives, and the ability to deliver a simplified shopping experience for our customers.

We expect continued growth in our web and call center business. We will invest in new capabilities that improve personalization, community building, and solution offerings leading to an improved customer experience and increase revenue and margin per transaction. We have aligned our retail operating teams to drive execution. We are disappointed with the speed of our reaction to our competitive pressures this fall, and have taken steps to improve performance in FY '08. This included moving from ten to eight regions, aligning span of control with best in class retail companies while gaining operating efficiencies.

We have assigned our top performing Regional Vice President to engage, teach, and hold accountable these regions for results. These teams will focus on the customer experience by ensuring that our customers are offered the products, warranties, and FireDog services they need.

We have identified regional gaps in solution selling, which highlights opportunities in customer experience and store productivity. Our leaders will be held accountable for developing the talent and reinforcing the tools and training needed to narrow these gaps. This work has already begun and the teams have made significant progress to date.

We will continue to make the necessary changes to compete in a crowded and competitive marketplace. While difficult at times, we will make tough decisions to ensure long-term growth opportunity for our associates. Last week, we began to fill the positions of approximately 3,400 associates paid hourly rates well above the marketplace with associates to be compensated at market competitive levels. As of yesterday, we are fully staffed in all but 159 of our locations and have begun accelerated training. We plan to have all of our stores fully staffed by May the 1st. We are committed to building a highly engaged and productive workforce. We recognize that last week's change may have a short-term impact on our associate morale and will likely cause short-term volatility.

In FY '08, we will drive both engagement and productivity. As a reminder, in the last two years, we have improved our index of associate engagement in our stores by 11 percentage points. In fact, our most recent survey shows an all-time high in-store level engagement. Higher levels of engagement have been statistically proven by third party studies to drive increased levels of productivity. This year, we will build on that work.

In FY '07, we launched a 50-store pilot designed to simplify the operations of our business by introducing new SOPs and communication tools. This work has shown sustained improvements in conversion, customer experience and associate engagement against the control group. We will scale this work to the remainder of the chain by the end of our second quarter.

We also have established 64 regional and district learning centers that will give us the capability to scale additional learnings more efficiently throughout the chain.

Finally, our projected sales growth and 60 to 65 new store openings will provide approximately 3,000 new jobs in the communities they serve.

Now, I'll turn the call over to Mike.

Mike Foss

Thank you, Danny. First I'd like to apologize, I'm battling a cold so the voice isn't exactly where it should be, so just bear with me. In the next few minutes, I will provide a little more information about our fourth quarter performance as well as talk about our fiscal 2008 guidance.

For the quarter, net sales increased slightly more than 1% to $3.93 billion. Our domestic segment sales grew more than 1% due to a net increase of 16 super stores in the last year, partially offset by a 0.5% decline in comparable store sales. Our international segment sales declined 0.5%. A decline of 1% due to fluctuations in foreign currency exchange rates was partially offset by comparable store sales increase of 0.3% in local currency.

Consolidated gross margin declined 89 basis points from last year. Domestic gross margin declined 45 basis points driven by the decrease in extended warranty net sales as a percent of net sales. International segment gross margin declined by 11 percentage points and impacted the consolidating gross margin by 49 basis points. 195 basis points of the decline resulted from inventory write-offs associated with plans to exit certain product lines, associated with store closures announced in February and other actions to align international segment merchandise assortment with consumer demand. About 500 basis points of the decline resulted from inventory markdowns. The margin rate was also impacted negatively by the continued shift from higher margin categories such as toys and batteries to lower margin categories such as personal electronics and GPS devices.

Consolidated SG&A expenses as a percentage of sales increased 250 basis points. In the domestic segment, which contributed 233 basis points to the increase, we incurred $38 million or 98 basis points of charges associated with store and other facility closings and restructurings activities, primarily lease-related cost and severance. Net incremental investments primarily related to strategic investments in IT, multichannel, and innovation activities totaled about 80 basis points of consolidated net sales. Relocations expenses rose by 19 basis points of consolidated sales due mostly to a higher number of relocations during the quarter.

International segment SG&A increased 465 basis points due to pretax expenses of $10.3 million, or 602 basis points of store closures and severance cost. Excluding these charges, the international segment would have shown good SG&A rate improvement versus the prior year.

We recorded a $92 million charge to impair the goodwill associated with the international segment. Based on the segment's performance year-to-date through December, we determined that we needed to evaluate the goodwill on our balance sheet. We engaged a third party to perform in the appraisal of the fair value of the business. This process resulted in the impairment we recorded in the fourth quarter.

Earnings before tax percent declined to 0.4% compared to 6.0% last year. For the 12 months, EBT percentage was 0.1% compared to 2%. But excluding the charges we have enumerated today we would have been at 1.3% for the full year.

The net result of the fourth quarter was a net loss from continuing operations of $0.09 per share compared with net earnings of $0.84 per share last year. As a reminder, the $92 million of good will impairment charge had a $0.54 negative impact on earnings per share and the $52.6 million of store and facility closures had a negative impact of $0.21 per share.

Now our reported tax rate is unusually high for the fourth quarter and full year so I wanted to give you a simple bridge to better understand the drivers. The statutory tax rate is 36.5%. This would have implied a tax of approximately $5.4 million on the $14.8 million of full year pre-tax book income. The $92 million good will impairment is nondeductible, which added $33.5 million at the statutory rate.

We have some tax exempt investments which would have resulted in a $6.4 million tax benefit, again at the statutory rate. And we also added net benefit of around $4 million in taxes due to several items such as state tax settlements and return to provision adjustments. The resulting tax was $28.5 million, which resulted in our reported tax rate of [192%] for the year.

Turning to the balance sheet. At February 28 we continued to have a very strong balance sheet with cash, cash equivalence, and short-term investments of $739 million, $58 million of long-term debt, which is principally capital leases and no short-term debt. The cash, cash equivalents and short term investments position is down $98 million from the $838 million we had at February 28, 2006. This year-over-year decline was principally due to the use of cash for purchases of property and equipment of $283 million for the year, as well as share repurchases of $237 million for the year. These expenditures were partially offset by cash provided by operations, including a significant decrease in net owned inventory.

Consolidated merchandise inventories declined 4% compared with last year as we reduced nonworking inventories while improved customer encountered in-stocks. Our net owned inventory decreased $133 million, $88 million of which was in the domestic segment. We expect more progress in our new fiscal year.

During the fourth quarter, we ramped up our share repurchase program versus the past couple of quarters. We bought back 5.0 million shares for $100 million, or an average cost of approximately $20 per share. We now have bought back a total of 58 million shares for $920 million, or an average cost of $15.89 per share. We have approximately $280 million for future share repurchases under our current board authorization. While we review share buyback activity at each board meeting, as with we are getting closer to the limit of our current authorization, we clearly will be discussing what our next step should be over upcoming board sessions.

Now, I want to spend a minute and discuss InterTAN. Last week we announced that we had engaged Goldman Sachs to explore strategic opportunities around our Canadian operations. This could include possibly divesting the business. I wanted to give you a little color around this decision.

As we have discussed over previous conference calls, we have been engaged in some major transformation work in our Canadian operation. This transformation work covers virtually all aspects of the business from store operations, to merchandising, marketing, supply chain, and the support organizations. Our team and their external partners are making great progress driving the necessary change to the business.

While we've made great progress, we realize that we have about a year or two or hard work remaining to get this business back to the levels of profitability that are appropriate for this business. Since we are in the midst of the transformation of our entire business, and also we see significant levels of M&A activity, we decided it was appropriate to explore how outside parties would value InterTAN, and based on this info, it would decide whether keeping or divesting the business would be in the best interest of our shareholders at this time.

Now turning to our fiscal 2008 outlook, please see today's press release for full details and the assumptions underlying it. It's important to note that this outlook assumes that we operate our Canadian business for the full year. So for the full year, we expect net sales growth of 5% to 8% driven by domestic comparable store sales growth of 3% to 5%, which will be significantly influenced by growth in direct channel sales of 30% to 40% from $1.1 billion in fiscal 2007 -- again this includes both web originated and call center originated sales -- and sales of FireDog services which we expect to approximately double in fiscal 2008.

So in addition to the comparable store sales growth, we will also drive significant sales growth through the opening of between 60 and 65 new super stores, with 17 to 19 of them being relocations of existing stores.

Earnings from continuing operations before income taxes as a percentage of consolidated net sales will be between 1.4% and 1.8%. Capital expenditures, net of land or reimbursements, will be approximately $255 million. Depreciation and amortization expense will be approximately $200 million. We expect a reduction in domestic segment net owned inventory, from February 28th of 2007 to February 29th of 2008 of between $100 million and $150 million.

In our announcement of last week, we estimated an SG&A savings of $110 million in fiscal 2008 as a result of the actions underway. This represented a partial year benefit of some of these actions. In fiscal 2009, we expect to get a full year of benefit which cause the annual savings of these actions to grow slightly to a total of $140 million for the year. It's important to note that there will be incremental investments in SG&A in fiscal year 2008 in areas such as new stores, IT, services, our direct channel and other areas and this is reflected in our guidance.

Also today, we announced that we expect a pretax loss of between $40 million and $50 million for the first half of fiscal 2008, followed by a strong recovery in the second half. As Phil discussed, we expect some volatility during the first half, given the changes we're making as part of transforming our business. In addition, we expect relatively high levels of year-to-year increases in investment spend for information systems, Circuit City Direct, and innovation activities during the first half.

With the first quarter being up approximately 80 basis points, the second quarter up approximately 34 basis points, investment spending in the third quarter will be about flat and we should see a 24 basis point improvement in the fourth quarter. These result in a full year incremental investment spend of around 17 basis points for all of fiscal 2008. We expect many of our transformation initiatives will take hold in the second half and we would expect to see meaningful financial performance improvement.

In closing, I just wanted to reflect for a minute or two given that this will be my last earnings call with Circuit City. It's been almost four years since I joined the company and the time has really flown by. This has been, without exception, the best job I've had in my career. I believe that we've accomplished a lot together over the past four years, starting with the restructuring the company, the focus on reducing cost and expense, rebuilding the management team, reengaging with Wall Street in an open and accessible way and the hard transformation process management work that is currently underway.

There will clearly be some heavy lifting to do at Circuit over the next year or two to get our company to attain the financial performance we know we can drive and this act has made the decision to leave at this time much is more difficult. I know we have a strong management team led by Phil, Dave, Danny and Eric as well as the rest of the Executive Committee, and a core transformation plan that I know in detail and fully believe that over time will make our company a great place for our customers to shop, our associates to grow and develop and our investors to prosper.

With that I thank you for my brief indulgence, and I would like to turn the call over to questions and answers.

Bill Cimino

Thanks, Mike.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Bill Sims - Citigroup.

Bill Sims - Citigroup

Mike, I want to wish you well on your future endeavors. This is for Phil. It looks like throughout the quarter you struggled to balance sales growth versus gross margin improvement, where early in the quarter it looks like sales came at the expense of margins and toward the tail end of the quarter it seems to be quite the opposite. Do you feel like you found that right balance between sales and margin improvement? What should we look for as we go forward from a promotional standpoint?

Phil Schoonover

A lot of moving parts in the sort of changing nature of the CE business. We did learn a lot from the ups and downs. In general, we had some tough decisions to make around our expense structure which impacted some of the traffic, particularly later in the third quarter and throughout the fourth quarter. We made some decisions on labor spend to try to hold the bottom line profitability, which in the end may not have been the most prudent decision. So on the demand side, we had to make some tough decisions and we learned from those decisions, kind of a mixed bag.

Obviously you heard a lot in the conference call script about learnings about the basket of products and services that we can sell with TVs. While the TVs are a better value than ever, there is an opportunity for us to grow the basket and frankly, from an executional standpoint to manage the gap between our best performing stores and the most opportunistic stores. We've made some investments there as well as some changes that should help us bring some accountability and better training and development to the people that need help.

Finally, I think that we were up against some difficult comp numbers for these quarters. We did gain overall CE market share and we held the predicted share on the TV business that we thought we would be able to attain. So we did not give our customers up to our core competitors during this period. So I think from a unit standpoint, the TV business in particular, but overall the stake in the ground categories for CE, we feel pretty good about holding our customers. Now we just have to refine the profit model.

Bill Sims - Citigroup

If I could just ask one follow-up. There's been a lot discussion this past week on the changes you made to your store associates and the replacement of store associates. Were these all digital television store associates? Can you give us an idea of roughly what percentage were coming out of the warehouse section of the store, versus salespeople versus cashiers?

Danny Clark

About 60% of those associates were in customer-facing positions. So think about that as product specialists you might seek when you enter a store. The rest of those associates were in positions, they might have been working in the warehouse, they might have been delivering a product, et cetera.

So as I mentioned earlier in the call, we are fully staffed in all but 159 stores. Our leadership teams have done a terrific job and put together a good plan to get back staffing in those stores. We put together an accelerated training plan so we think we're going to be able to meet customer service demands right away, but we've had a very quick recovery. By the end of this month, we'll be fully recovered for all of our locations.

Operator

Your next question comes from the line of Daniel Binder - Buckingham Research.

Dan Binder - Buckingham Research

It's Dan Binder, by the way. They always get it wrong. I had a few questions for you, you outlined broadly some organizational changes that you're making. I know last year you talked about getting the close rates up at the analyst meeting. It sounds like these are the first really structural changes in your model that may help you achieve those.

I was wondering if you could just give us more color on what kind of labor model changes you're doing and what gives you the confidence that you can do that in the next few quarters?

Also on the warranty business, I was wondering if you could give us a little more color on what happened in Q4 in terms of the pricing on warranties relative to the product cost? Where is that going and where do you think the opportunities are on that?

Phil Schoonover

Okay. I'm going to let Danny Clark answer both of those questions and I may have a little color at the end.

Danny Clark

First of all, I talked about the 50 store pilot group in my comments where we went in last year and have done some standard operating procedure changes, new SOPs in those stores, a new operating model in those stores all the way from how we receive trucks to how merchandise goes out on the floor to how associates interact with customers. We ran that pilot for over six months because we wanted to make sure that we had sustainable results. We've had sustainable improvements in both conversion, customer service levels in those stores and associate engagement. So there's been three very positive signals from those stores over time and across 50 stores in different markets around the country.

That work will be scaling in the first half of this year so that will be in place in all of our locations. So to your point gives us the structural opportunity to go improve conversion as we talked about last fall.

The other thing, the question was about the basket and warranty specifically. So one of the things I also noted in my comments was that we first of all, we wanted to get a more efficient structure, better communication line into our stores. We asked our top performing Regional Vice President who has led our organization in terms of the basket in customer service levels and associate engagement in his market to go out and lead a smaller, tighter, regional team across the country, which he has done that job. They've begun the work on focusing on gap management opportunity in those markets and have made significant progress to date.

We're going to focus more on the total basket than just the warranty. We want to make sure that we provide the customer with the goods whether it's products, whether it's warranties, or whether it's FireDog services and we think we have an opportunity to make significant executional progress this year and we will hold our teams accountable for that progress.

Phil Schoonover

I think, Dan, we've got to hit head on we feel there's some opportunity to shore up our City Advantage performance both from an attachment standpoint and a profitability standpoint. One of the learnings from the rapid price drops is we were not moving the value of our City Advantage plans through the holiday season fast enough to keep pace with the plummeting prices and City Advantage renegotiation with our insurance companies, et cetera, to get that done and then we have to train people how to sell the new plans. That's just one example.

Another example would be we had tremendous gaps between our best performing stores and our most opportunistic stores in the sale of City Advantage and other basket items. But to hit the warranty question head on, we're not satisfied with our current warranty performance.

Dan Binder - Buckingham Research

The stores that you tested your new labor model and process changes in, what kind of improvement did you see in the close rates in those stores?

When you refer to the teams that are helping to usher in some of these initiatives, are you referring to the layer of District Managers that you put in place?

Lastly on the warranties, a follow-up there. Are you in any way restrained by the price that you can charge for a product? In other words, as the TV prices come down, are the insurance companies resisting price cuts such that it's going to cost you in the margin to offer a competitive warranty price?

Bill Cimino

We're probably not going to discuss the pricing of any particular product on this. I think Danny can talk with you a little bit more about the learnings from the SOPs.

Danny Clark

Yes in the 50-store pilot, what we did was set those stores up against a control group so we could follow improvements they had against conversion against those stores, against the customer experience to those stores and the associate engagement. In every case the 50-store pilot group performed better than the control group.

Now that base moves around some as our product mix moves around so that changes week to week as our product mix changes. But one thing that was very consistent is that we got a better customer experience and a better conversion rate in those stores.

Also as we're making this transition, we have put structure around these stores to help them make the transition. I mentioned that we're going to open, in fact we're in the process of doing that now, 64 learning centers. Think of this as sort of a spoke and hub model where people can come into the store that have already gone through the transformation, they can touch it, they can feel it, they can actually do the job in a new way. We're very excited about that. We wanted to have a way to go speed to scale quicker and we think this gives us that.

Operator

Your next question comes from the line of Michael Baker - Deutsche Bank.

Michael Baker - Deutsche Bank

One, just in terms of the associate changes that you made, was it simply that you took the higher earners and let those guys go? Or was there any adjustment or measure of the productivity of those particular employees factored into the decision? I think one concern is the higher paid employees presumably are the better employees. So correct me if that's wrong in how you measure that.

Second question, just bigger picture, I'm wondering about the decision to continue to accelerate the store growth and what seems like a tougher environment if you could speak to the thought process there. Thanks.

Phil Schoonover

As part of our overall transformation, we have to move towards a competitive cost structure. Retail generally looks at wage and rate on a periodic basis and makes sure that we're paying the appropriate ranges for the job being done. This is work that we identified literally years ago, but had other priorities that we were focused on. Frankly, we did not get at this work fast enough to be competitive in the marketplace.

So as far as the correlation between wage and rate to actual performance, there is no direct correlation that we could find in our analysis between the top paid associates and their performance against the tasks that they were asked to do. This is a very different set of circumstances than our conversion from commission to non-commission where we were literally taking our best salespeople, and in that conversion, eliminating their roles and their positions.

We did look at the data, but more importantly, we need to move forward with an operating model that competes for the customer value that we have to provide for the health of the other 40,000 associates and most importantly, to deliver a respectable bottom line for our investors. We did not have a competitive cost structure carrying the burden of this labor rate.

Bill Cimino

The other question was about real estate?

Michael Baker - Deutsche Bank

Right.

Phil Schoonover

Overall there's two sides of the store growth story. One is just getting the box right-sized and getting it merchandised in a way that we can extend our assortments with the multichannel work we've done and we can provide even better value when we think about opportunities like customers shopping online and picking up in the store. So right-sizing the box, and getting the box laid out for the way customers shop today.

We all know that packaged media is under siege with the digitization of music. We need less space for that going forward, TVs are flat instead of our large tube TVs, so we need less space for that, and frankly, most of our categories the devices are getting smaller. There's also the need to represent solutions so the service engine that we call FireDog needs to be better represented in our stores.

So there's a number of changes that we've made to our latest format to better serve the customer more efficient for our associates and to make more money.

In addition to that, we have fallen way behind on new store openings so just our national footprint has fallen behind our national competitors. That's good news and bad news; the combination of being able to right size our box given the realities of the CE business and rapidly iterate our format, we now have a pipeline of 35 stores last year, up to 65 stores this year and we're looking at up to 100 stores the following year where we can dramatically change our experience, our economics and our footprint all at the same time. We are very excited about the real estate opportunity and we think about that as our fourth pillar of our strategy.

Michael Baker - Deutsche Bank

Just as a follow-up, though; of the 100 or so next year, any color on how many of those are actually replacement stores? What I'm getting at is I understand you want to improve the box, but is it fair to say that the total number of stores should be accelerating the next few years?

Phil Schoonover

Approximately one-third of the stores we build in '07 what we expect in '08 and also in fiscal '09 will be relocations. About two-thirds will be new stores, new incremental stores and incremental trade areas for us.

Operator

Your next question comes from the line of Danielle Fox - Merrill Lynch.

Danielle Fox - Merrill Lynch

I was wondering if you could just talk a little bit more about your outlook for the promotional environment and for average selling price declines for TVs? I think your chief competitor this morning mentioned that they expected things to moderate in the back half of the year. You pointed to a pretty intense environment and some structural changes in the industry. So I'm wondering what you see for Circuit City?

Phil Schoonover

I think there were several lessons learned for the fourth quarter, not the least of which the prices were dropping faster than consumer demand was picking up both for Circuit City and for the industry. Most of our large vendors were not happy with their financial results for the full fiscal year. At the end of the day, the drop in average selling price was not offset by the pickup in unit velocity for the industry. In the meantime, the tube TV business is dropping precipitously and frankly projection TV is softening quite a bit.

I think all this will lead to more rational behavior from our largest suppliers. I'm not here to say that we're sure what the second half looks like because we have 96 suppliers of flat panel TV who market their products in the U.S. With production facilities all over the world and brands from China, we don't know what their real marketing strategies are, we think it's going to be a competitive marketplace for the flat panel TV business.

We're shifting our focus to use the dropping average selling prices of television to provide an opportunity to sell the customer a more complete solution. We think customers are willing to spend more money and we think customers, particularly in high definition TV, need a more complete solution. We're going to use the unit velocity to increase our profitability by getting better attachments and baskets.

Operator

Your next question comes from the line of Timothy Allen - Jefferies.

Timothy Allen - Jefferies

A question regarding the CompUSA store closures, do you have an idea for what the overlap might have been with your store base and maybe how much market share would be available from those closings?

Mike Foss

We think there's probably about 70% of the stores of the Comp USA stores that operate in trade areas that we also inhabit so we know we will get some benefit. Do we believe that be a material piece of our revenues next year? No. Or in fiscal '08 No. We will get some benefit from that. It's hard to quantify what the specific dollar amount will be.

Timothy Allen - Jefferies

A question with flat panels. I don't know if you have an estimate for what the household penetration might be or was it the end of last year and what you expect that to be in the coming year?

Mike Foss

I think the latest CEA numbers have published. I think that number is 29% or 30% household penetration at the end of calendar 2006. We can verify that for you Tim and get back to you on that.

Timothy Allen - Jefferies

That's all right. Do you know if that would include high definition? Or are they all lumped together?

Mike Foss

It's all lumped together. By the way, that number is a digital television number and it is 29%. I don't see the separate high definition number.

Timothy Allen - Jefferies

That was the end of last year, calendar 2006?

Mike Foss

Correct.

Timothy Allen - Jefferies

Lastly, could you repeat the incremental investment by quarter?

Mike Foss

I will read it to you now, but we will also make sure that we have it on the website. Okay in the first quarter -- and this is total SG&A rate impact caused by the incremental investments in MIS, Circuit City Direct, and innovation activities so it is consistent with the definition we've used all fiscal '07.

In the first quarter of fiscal '08, we would expect an 80 basis point impact on our overall SG&A rate due to incremental investment spend. In the second quarter we expect it to fall to 34 basis points. In the third quarter we expect it to be about flat year to year. In the fourth quarter, we will actually see a reduction of about 24 basis points. So the total for the full year is about 17 basis point impact on investments.

Operator

Your next question comes from the line of Colin McGranahan – Sanford Bernstein.

Colin McGranahan - Sanford Bernstein

I just wanted to focus first on the TV category. I was a little surprised the flat sales of the quarter. I was hoping you could help me contrast that to the industry a little bit whereas you use the display search data from the calendar fourth quarter, you had dollar volume up about 24%. I think your other competitor this morning said double digit growth in the TV comp category. Is that a mix difference in that you have more tube and projection in the mix at that point? Is that some of the execution issues you ran into, is it a different promotional stance? What explains your flattish TV dollar growth versus an industry that look like it was growing in the double-digits?

Phil Schoonover

I think you're asking two questions. Total television was down because of our precipitous drop in tube and our softening in the projection TV business. But our advance TV market share was clearly up strong double-digits. Our overall unit growth was up for the quarter.

Colin McGranahan - Sanford Bernstein

The 24% reported was the total TV category including tube and projection and micro projection. So would that say that you have a bigger ASP decline or you're more mixed to the declining categories?

Bill Cimino

Colin, I think what we want to do is we don't want to get into that sort of level of detail on the call. We understand the question you're asking, but at this point we don't want to get into that level of detail.

Colin McGranahan - Sanford Bernstein

I don't need numbers, I'm just trying to understand flat dollar growth in the TV category. It's kind of an issue.

Phil Schoonover

I understand what you're saying. Clearly for us it was the decline in tube television and projection TV offset by the Advanced TV for overall unit growth, but ASPs in flat panel TV declined significantly in the same quarter so that the dollars for the quarter were impacted by all three issues.

Colin McGranahan - Sanford Bernstein

Given the tough compare certainly in the first quarter and reasonably difficult compare, I think 8.9% in the second quarter should we assume pretty weak negative kind of comps in the first half and then a rebound in the second half against the easier compares?

Phil Schoonover

I think as we kind of alluded to in the script we expect to have a pretty volatile first half of the year partly because of industry, partly because of the macro economic factors, but also as a function of all the activities that we're trying to front load to if first half of the year in terms of transforming our business.

You're absolutely right also that we have some pretty tough comparisons in the prior year, especially in the first half of the year. We won't give you a specific number, overall the $40 or $50 million pre-tax loss in the first half and obviously sales will be a component of that.

Colin McGranahan - Sanford Bernstein

That kind of implies like a mid single digit or better comp in the back half. Are there particular product categories that you have a lot of confidence in around the holidays?

Phil Schoonover

We continue to focus on the stake in the ground categories, including advanced television but that would also include the basket of products and services we sell with advanced television. We continue to be bullish on the MP3 business throughout next year. We think that the video game platforms will all be major growth opportunity with better in stock and availability. The imaging business continues to be a strong business for us. FireDog services as an inbound service growth channel, the web growth and the overall growth in our call center business as growth engines and, of course, the other product that we're very excited about the early indications that Vista is a great platform for the consumer and it's particularly positive for our notebook computer business.

Operator

Your next question comes from the line of Matthew Fassler - Goldman Sachs.

Matthew Fassler - Goldman Sachs

First of all, on TV, if you do focus on the advanced TV or flat panel businesses, clearly in the first half your market share gains were self-evident from the numbers. If you look at the second half of the year, was there any change in your view in your competitive standing in terms of pricing or assortments or anything like that, whether it resulted from actions you might have taken or maybe changes that competitors might have made? I'm thinking more in terms of pricing and in terms of assortment perhaps in the mass market.

Phil Schoonover

When we look at our market share and when we look at our unit growth. Frankly speaking, we didn't give to our competitors. When we look at our average selling price when we look at the basket and attach, we gave up what we consider to be a very significant opportunity to enhance the profitability for the company. So our go to market strategies, we're not going to disclose those. We have talked today about the opportunity to improve the basket. We've talked today about the opportunity to take a different promotional stance as well as a different stance with labor for the all important holiday selling season. Most of that work will come as a result of the recrafting of the SOP in merchandising and the recrafting of the SOP in the store level.

We expected to see continued price declines in television selling prices, but less rapid and severe than we saw in the fall of 2006 and we also expect to benefit from some mix adjustments to larger screen size and the true high definition technologies, which will offset some of the unit ASP declines.

I think there's a lot of moving parts here; what we learned was attachments are important and even more important and the customers willing to spend a given dollar amount against their complete solution purchase, I think that's been the big learning.

Matthew Fassler - Goldman Sachs

You talked a little bit about innovation and you also talked about your commitment to real estate transformation.. Can you give us just a general sense of how the innovation efforts are performing, and whether we're going to see that rolled out to a greater degree in 2007 and also the performance of the stores that you've opened in the past 12 months?

Phil Schoonover

Innovation into our strategic pillars so in the case of winning home entertainments, the physical reset that you saw in our stores, the enhanced web experience, including the micro site, the work that we did in the 50-store pilot for standard operating platform which really focused on our stake in the ground categories; all that innovation work is being scaled throughout our business. Some has been completed as Danny alluded to, the SOP work that is in the process of being scaled now.

Under the heading of services, most of our service value proposition, including the decision to combine home theater installation and PC repair under one umbrella, because that's the way customers consume these services, came from our early innovation work. We continue to experiment with service innovations, including how we handle the selling experience in the home.

Under the heading of multichannel, there's been many upgrades to our website experience, the build out of our customer contact centers, which we used to call “call centers” and the way that we interface with customers on a two-way basis, outbound calls as well as inbound calls and the coordination of our web, our call centers, and our stores.

There's a massive amount of innovation work under the heading of strategic insights, we're not going to share all those learnings today, but we continue to invest in our web and call center experiences as a result of our innovation learnings.

Last but not least, concept development under the heading of innovation investments we have our connect store in Boston, we have several flavors of 20,000 square foot stores out there. We've modified our layouts in our 30,000 square foot prototype. So there's a massive amount of innovation around the store experience aimed at how can we do more with a smaller footprint. It has been one of our biggest negatives as a company and it could turn into one our biggest strategic advantages as packaged media evaporates and our general device strategy gets smaller and thinner.

We have been spending a lot of time and effort on concept development.

Mike Foss

You asked one last question about new store performance. We will include in the K as we traditionally do some performance indicators both for new and relocated stores. So you'll see that when we publish the K.

Matthew Fassler - Goldman Sachs

Any sneak peek?

Mike Foss

We're pretty happy with our performance.

Matthew Fassler - Goldman Sachs

Thank you.

Operator

Your next question comes from the line of Gregory Melich - Morgan Stanley.

Greg Melich - Morgan Stanley

In terms of the ASPs being the real pressure and I guess opportunity is it fair to say that the sales deceleration I guess it was probably 1,000 basis points year-over-year would have been pretty much all basket and the traffic was still only down slightly? Or was the deceleration more of a mix of traffic and ticket?

Phil Schoonover

Yeah, it was really both. It was a mix of traffic and ticket.

Greg Melich - Morgan Stanley

Would you say that traffic was still negative or it would have been more negative?

Phil Schoonover

I think a way to think about this is we basically had expectations that were higher and ended up flat in both areas.

Greg Melich - Morgan Stanley

Flat versus your expectations?

Phil Schoonover

Right.

Greg Melich - Morgan Stanley

Okay. So when you say you kept customers, you didn't lose any customers, that means that your traffic was down, and your negative half comp included down traffic?

Phil Schoonover

We gained consumer electronics market share each month of the year throughout the year. We're not disclosing those numbers because we don't want to have to disclose them on a go forward basis. But rest assured that we gained share. So when we talk about not giving up any of our customers, that is measured by overall CE market share gains and materially hitting our market share targets in the flat panel television business, advanced television business.

Greg Melich - Morgan Stanley

It's the flat panel focus that you're talking about? Overall for the store?

Phil Schoonover

Right.

Greg Melich - Morgan Stanley

Just to go back to the beginning. I should assume the traffic deterioration was both a mix of traffic and ticket?

Phil Schoonover

I think I understand your question now. Our traffic was flat. Our close rate was slightly down, mostly due to mix due to packaged media to the bigger ticket selling items, but our units were up. I'm sorry I didn't understand your question.

Greg Melich - Morgan Stanley

That helps. Thank you. As you're accelerating square footage growth, what are you seeing in terms of rent inflation? We have very clear numbers on your reported CapEx. But what sort of CapEx is there imputed through the rent leases you're signing?

Mike Foss

We're seeing, as we have for a number of years obviously as we are putting new locations in better retail locations than we've had in some cases in the past, we're seeing a pretty significant increase in the rent. I don't think we've disclosed a specific percentage. In the past it's been about 50%. I don't have an updated number for what we saw on average for 2007 but we are getting increases both due to normal inflation but also as we go into more A locations than we had in the past.

Greg Melich - Morgan Stanley

Mike, is it still typically a 15-year lease? Is that changing at all?

Mike Foss

Our standard model is ten years with lots of options. In a few situations we'll go longer if we need to if we get kick out clauses.

Operator

Your next call is from Steve Chick - JP Morgan.

Steve Chick - JP Morgan

Thanks. I guess first off, maybe for Mike, another real estate related question. I know when the K comes out you give some of the economics of store revitalization and new store performance. It doesn't typically speak to sales per square foot and margins.

I'm wondering by my math, I think you have maybe 36% of the company right now that's been kind of touched so to speak. Is your experience that these stores are higher than the average in terms of your sales per square foot and the margin potential to date?

Mike Foss

So much is dependent upon location, urban versus more rural, whether you're in existing areas or you're stores cannibalizing around sales. It's hard unless we get down to specific stores, it's hard to form a overall average. We're very comfortable with the sales per square footage and the profit per square footage that we're getting out of our new stores in aggregate.

Steve Chick - JP Morgan

It seems like going forward you should get a natural lift from this program, particularly given that I'm assuming your selling space is a much bigger percentage of the gross store with these new stores.

Mike Foss

But again, it comes down to number one is we're shifting our mix more toward 20Ks versus historically 30ks. It has a much higher percentage of selling area versus total area than our old showroom configured stores did. But remember also, some of our incrementals are filling out existing market areas as well. So there's a lot of puts and takes when you look at total sales.

Phil Schoonover

Let me zoom out a little bit and I'll hopefully answer your question directly. The transformation for our real estate team really began a year-and-a-half ago. So the 35 stores last year, the 60 to 65 this year and the up to 100 next year, when you said we changed out about a third of our stores, we're actually just getting started and you're just beginning to see the impact of the first 35 stores.

I would say this: we need to give you tighter guidance around the model. The reason we have not is we are not done with our pilots in the 20K. I understand your question, making a big investment here and we should tell you what we're going to get for the investment, give us a bit more time to secure the results from our tests and pilots in the 20K. It's a radical departure from where we were a year ago and we'll give you tighter guidance around this in future conversations.

Steve Chick - JP Morgan

Can you just confirm the 20k to 30k stores, are those roughly the selling square foot numbers? And is there roughly an average of what selling is, is it 80%?

Mike Foss

The 20 and 30 are the aggregate square footage of the building. Selling square footage on average is about 80% of the total square footage in the new stores.

Steve Chick - JP Morgan

Okay. That's really helpful. Second question if I could. Can you speak to, I guess as you go to the next year, I would think that the drag from projection in tube declines within your TV category becomes a lot less. I was wondering if you could give us a sense around that? What percentage of your TV category is projection and tube now and what that might look like this time next year?

Phil Schoonover

I just want to put some caution on that math. I think including CEA and some third party research that's been done, expectations on total unit growth and total dollar growth have been dampened a bit. We had anticipated a 6% calculated annual growth rate for the total CE business and we're seeing ranges of 2% to 6% on the big driver, which is TV. So average selling prices are falling fast and it's impacting the total revenue for the category.

I think consumers are going to vote quickly here, the values in small LCD and large plasma and LCD televisions are getting so strong that I do think that tube TV is all but a wind down for us now and projections can continue to be under some pressure.

We think in general the big issue is average selling price, and it remains average selling price. So therefore, we have to really focus on how we make money in the TV business, which is attaching accessories, furniture, brackets, FireDog installation services and other digital services so they can enjoy HD at home.

Operator

Your next question comes from the line of Alan Rifkin - Lehman Brothers.

Alan Rifkin - Lehman Brothers

With your guidance for the first half pre-tax income to be down together with your full year guidance, if we do our math correctly, it implies about a 90% increase in pretax income in the second half of the year. I guess my question is, with so much exposure then to the second half of the year in the fourth quarter in particular, can you maybe provide a little bit more color as to what some of your assumptions are on the promotional environment in the fourth quarter in particular? To what extent are you absolutely comfortable that the volatility that you're already forecasting to see in the first half won't extend beyond the first half of the year?

Phil Schoonover

Let's break that into two answers. First of all, the volatility that we see in the first half we believe a great deal of it will be self-induced. So we're making a lot of changes to our management structure, to our systems, to our processes and to our standard operating platforms in the stores, on the web and in the call center.

This was an anticipated set of changes. What we're having to do is accelerate it to make room for the new business model, particularly in the TV business. So we're doing this at fast speed. The warning that we put on the first half, the guidance that we've set takes that into account. Now I think you have to look at the two year progress that we've made in the second half to rationalize our second half numbers.

While we do see some more rational behavior, particularly in the TV business being some upside, we're not taking a great deal of that to the bank in our estimates. We think the TV hardware business, the flat panel TV business is going to be under profit pressure. We think that the computer business will continue to be under pressure. We do think we can make very significant strides in our sales of products on the web and our sales of products and services in the baskets on these major stake in the ground categories in the store, and we do think there'll be some positive net margin impact from that.

But with all that said, we don't think there's going to be any kind of a rapid recovery in the competitive pressure or the vendors fighting for market share in the flat panel TV business.

Operator

Your final question comes from the line of Mitch Kaiser - Piper Jaffray.

Mitch Kaiser - Piper Jaffray

You've done a nice job with FireDog growing that business to $200 million over the course of the last couple of years. I was hoping you could talk about maybe where you see the profitability of that business going? What levels of EBIT you could achieve in that business?

Phil Schoonover

We're not going to disclose exact EBIT, but I will say that it's above the company's average EBIT and we see it as a way to enhance the kind of margins that we typically see in baskets for TVs and for PCs primarily, but also for digital and imaging products. What we're really looking to do is continue to grow our overall basket revenue of gross revenue and to grow our overall basket and profitability.

Mitch Kaiser - Piper Jaffray

You're looking for another $200 million of incremental revenue in that business this year. You're talking about EBT margins of 1.4 to 1.8, would the expansion of FireDog help? And if so, would that be the majority of the expansion in EBT margin?

Mike Foss

Clearly there are multiple items that are driving the improvement in financial performance in '08. The service is a key part of it. We won't get into a discussion of how much of the growth is driven by it.

Phil Schoonover

I would also add that this differentiates us from some of our more commoditized competitors and enhances our customer experience and it's really part of our multichannel transformation work.

Bill Cimino

Thanks, Mitch and thanks everyone else for participating in today's call and for your questions. Before we conclude the call, I'd like to remind you that a replay will be available by approximately 2 p.m. Eastern time today and will remain available through April 11th.

Investors in the U.S. and Canada may access the recording at 1-800-642-1687 and other investors may dial 706-645-9291. The access code for the replay is 2114262. A replay of the call also will be available on Circuit City investor information home page at investor.circuitcity.com. Thank you and this concludes our call.

TRANSCRIPT SPONSOR

Better Than AdSense

What if there was a way to promote your company to a perfectly targeted group of potential customers, partners, acquirers and investors? What if you could tailor your pitch to them at the moment of maximum interest? And what if you could do this for a no-brainer price?

This is exactly what Seeking Alpha is offering with transcript sponsorships.

Six types of companies are sponsoring earnings transcripts on Seeking Alpha:

1. Company sponsors its own earnings call transcript (example).

2. Company sponsors partner's transcript (example).

3. Company sponsors competitor's transcript (example).

4. Issuer-sponsored research firm sponsors client's transcript (example).

5. Investment newsletter sponsors transcripts of successful stock picks (example).

6. IR firm sponsors transcript of micro-cap company (example).

7. Consulting company sponsors company's transcript in sector of interest (example).

Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Circuit City F4Q07 (Qtr End 2/28/07) Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts