Circuit City 2010 Annual Report Download - page 24

GEOGRAPHIES:
North American sales benefited from increased retail and internet sales in the consumer channel, the result of opening seven retail stores in 2010,
the Circuit City acquisition in 2009, and the increased sales from the Industrial Products segment. On a constant currency basis, North American
sales would have grown 8.9%. The movement in the exchange rates positively impacted sales by approximately $19.9 million.
European sales grew primarily from an increase in business to business sales. On a constant currency basis, European sales would have increased
29.6%. Movement in foreign exchange rates negatively impacted sales by approximately $52.9 million.
CHANNEL SALES:
Worldwide consumer-channel revenue, defined as revenues from retail stores, consumer websites, inbound call centers and shopping channels,
grew primarily from volume increases in computers, including laptops and netbooks and consumer electronics, including televisions, reflecting
improved global economic conditions. On a constant currency basis and excluding the WStore acquisition, worldwide consumer channel sales
increased 2.4%.
Worldwide business to business channel sales grew primarily from an improvement in global economic conditions and the WStore acquisition in
2009. On a constant currency basis and excluding the WStore acquisition, worldwide business to business channel sales grew 18.1%.
2009 versus 2008:
The growth in Technology products sales in 2009 compared to 2008 was driven by increased retail and internet sales, opening of five retail
stores and the two acquisitions completed in 2009. The Circuit City acquisition and the WStore acquisition contributed $67.3 million and $63.8
million in sales, respectively. On a constant currency basis, translating 2009 foreign results at 2008 exchange rates, Technology product sales
would have grown 10.5% or $120.9 million. Adjusting for the impact of the number of weeks, Technology products sales increased 8.3% for the
year. North American technology sales increased 14.3% in 2009 compared to 2008 benefiting from the opening of five retail stores and the
Circuit City acquisition. On a constant currency basis, translating 2009 Other North America results at 2008 exchange rates, North American
technology products sales would have grown to 15.2%. The movement in exchange rates negatively impacted sales by approximately $17.3
million. Adjusting for the impact of the number of weeks, North American technology sales would have increased 16.7%. European technology
products sales declined 9.8% to $848.5 million as the result of slower business to business sales. Sales attributable to the WStore acquisition
totaled $63.8 million for the year. On a constant currency basis, European sales would have increased 1.2%. Movement in foreign exchange rates
accounted for $103.6 million of the sales decline in Europe for the year. Adjusting for the impact of the number of weeks, European sales would
have declined 8.3%. As in the United States, sales slowed in the second half of 2008 in Europe and Canada for both consumer and business to
business sales as the result of a slowdown in economic activity Industrial products sales decline was attributable to the slowdown in business to
business economic activity. The Company announced plans to exit its Software solutions segment during the second quarter of 2009.
Substantially all of the third party business activities of ProfitCenter Software had ended as of December 31, 2009. Current and prior year results
for this segment are now included in Corporate and other.
GROSS MARGIN
Consolidated gross margin declined by 70 basis points in 2010 versus 2009 as the Company continued to lower certain product prices, offered
freight discounts on the Company’
s North American websites and incurred start up costs related to the new distribution center in North America
partially offset by improvement in gross margin in Europe and in Industrial Products. Gross margin is dependent on variables such as product
mix, vendor price protection and other sales incentives, competition, pricing strategy, cooperative advertising funds required to be classified as a
reduction to cost of sales, freight discounting and other variables, any or all of which may result in fluctuations in gross margin.
Consolidated gross margin declined by 60 basis points in 2009 versus 2008 as the Company lowered certain product prices and offered freight
incentives in order to maintain and grow market share and to respond to competitive pricing pressures that started in 2008. Additionally,
consolidated gross margin has been impacted by a shift in mix, as higher margin Industrial Products accounted for a smaller percentage of
consolidated revenues than in previous years.
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