Circuit City Stores Inc. said Tuesday it will delay its year-end earnings announcement until the nation's No. 2 chain of consumer electronics stores has finished a lease-accounting review that could reduce net income for the fourth quarter and fiscal 2005.
The company had expected to release Wednesday its results for the fiscal year ended Feb. 28, 2005. Now, it plans to report fourth-quarter and year-end figures "within seven to 14 days," said Michael E. Foss, the company's chief financial officer.
Circuit City officials said they might have to adjust the way the Richmond-based retailer accounts for certain leases, which would affect the timing of the expenses. They estimate earnings for fiscal 2005 could be reduced by up to 5 cents per share, resulting in net income between 28 cents per share and 30 cents per share. The figures include a charge of 15 cents per share associated with the closings of 19 superstores, five regional offices and a distribution center.
Analysts surveyed by Thomson First Call had estimated earnings of 43 cents per share for the year. However, First Call said that estimate does not include the recently announced charge for the closings.
Excluding any adjustments from the lease review, the company expects to report earnings for the fiscal year between 33 cents per share and 35 cents per share, after the charge associated with the closings.
So far, the company said the lease review "has not identified any material impact on previously reported statements of operations."
The potential snag emerged after Circuit City had almost completed a review of its current lease accounting practices. At issue are up to 20 leases in which Circuit City had constructed buildings on leased property and then transferred them to landlords after being reimbursed for construction costs.
To comply with accounting standards, the retailer might be forced to classify the reimbursements as financings rather than sales. Under both methods, the expenses are identical, but their timing can differ significantly, Circuit City said.
The Securities and Exchange Commission recently issued guidance on the leaseback situations — which is largely impacting retailers.
