CIRCUIT CITY STORES INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from_________ to _________

Commission File No.: 1-5767
CIRCUIT CITY STORES, INC.
(Exact name of Registrant as specified in its charter)

VIRGINIA 54-0493875
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

9950 Mayland Drive
Richmond, VA 23233
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (804) 527-4000

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Each Class on Which Registered
Circuit City Stores, Inc. - Circuit City Group Common Stock, Par Value $0.50 New York Stock Exchange
Circuit City Stores, Inc. - CarMax Group Common Stock, Par Value $0.50 New York Stock Exchange

Rights to Purchase Preferred Stock,
Series E, Par Value $20.00 New York Stock Exchange
Series F, Par Value $20.00 New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No ___

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].

On May 1, 1998, the Company had outstanding 99,536,965 Circuit City
Group common shares and 22,386,010 CarMax Group common shares. The aggregate
market value of the common shares held by non-affiliates (without admitting that
any person whose shares are not included in determining such value is an
affiliate) was $4,031,247,082 for the Circuit City Group and $284,022,502 for
the CarMax Group based upon the closing price of these shares as reported by the
New York Stock Exchange on May 1, 1998.

Page 1 of 17

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference in
Parts I, II, III and IV of this Form 10-K Report: (1) Pages 19 through 73 of the
Company's Annual Report to Shareholders for the fiscal year ended February 28,
1998 (Parts I, II and IV) and (2) "Item One - Election of Directors,"
"Beneficial Ownership of Securities," "Executive Compensation," "Employment
Agreements and Change-in-Control Arrangements," "Compensation of Directors" and
"Section 16(a) Compliance" in the May 12, 1998 Proxy Statement, furnished to
shareholders of the Company in connection with the 1998 Annual Meeting of such
shareholders (Part III).

TABLE OF CONTENTS
Item Page

PART I

1. Business 3

2. Properties 9

3. Legal Proceedings 11

4. Submission of Matters to a Vote of Security Holders 11

Executive Officers of the Company 11

PART II

5. Market for the Company's Common Equity and Related Stockholder Matters 12

6. Selected Financial Data 12

7. Management's Discussion and Analysis of Results of Operations and Financial Condition 13

7a. Quantitative and Qualitative Disclosure about Market Risk 13

8. Financial Statements and Supplementary Data 13

9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13

PART III

10. Directors and Executive Officers of the Company 13

11. Executive Compensation 14

12. Security Ownership of Certain Beneficial Owners and Management 14

13. Certain Relationships and Related Transactions 14

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 14

Page 2 of 17

PART I

Item 1. Business.

Circuit City Stores, Inc. was incorporated under the laws of Virginia
in 1949. Its corporate headquarters is located at 9950 Mayland Drive, Richmond,
Va. Its retail operations consist of Circuit City Superstores, Circuit City
electronics-only stores and mall-based Circuit City Express stores. Certain of
Circuit City Stores, Inc. subsidiaries operate CarMax Auto Superstores, a used-
and new-car retail business. In addition, Circuit City Stores, Inc. holds
approximately two-thirds of the ownership interest in Digital Video Express, LP
and related operations, a limited partnership formed to develop and launch an
enhancement for DVD players that provides significant convenience, flexibility
and affordability for movies released on Divx digital discs. The Company has
wholly owned finance operations that provide consumer revolving credit and auto
installment loans.

Changes in Capital Structure. On January 24, 1997, shareholders of
Circuit City Stores, Inc. and subsidiaries approved the creation of two common
stock series. The Company's existing common stock was subsequently redesignated
as Circuit City Stores, Inc.-Circuit City Group Common Stock. In an initial
public offering, which was completed February 7, 1997, the Company sold 21.86
million shares of Circuit City Stores, Inc.-CarMax Group Common Stock.

The Circuit City Group Common Stock is intended to track the
performance of the Circuit City store-related operations; the Company's
investment in Digital Video Express, LP and related operations; the Group's
retained interest in the CarMax Group and all other businesses in which the
Company may be engaged (other than those comprising the CarMax Group). The
CarMax Group Common Stock is intended to track the performance of the CarMax
operations.

Notwithstanding the attribution of the Company's assets and
liabilities (including contingent liabilities) and stockholders' equity between
the Circuit City Group and the CarMax Group for the purposes of preparing their
respective financial statements, holders of CarMax Group Stock and holders of
Circuit City Group Stock are shareholders of the Company and continue to be
subject to all of the risks associated with an investment in the Company and all
of its businesses, assets and liabilities. Such attribution and the change in
the equity structure of the Company does not affect title to the assets or
responsibility for the liabilities of the Company or any of its subsidiaries.
The results of operations or financial condition of one Group could affect the
results of operations or financial condition of the other Group. Accordingly,
financial information about one Group should be read in conjunction with
financial information about the other Group and the consolidated information.

In this document, the following terms and definitions are used:

The Company refers to Circuit City Stores, Inc. and subsidiaries,
which includes Circuit City retail stores and related operations, the
CarMax retail stores and related operations, and the Company's
investment in Digital Video Express, LP and related operations.

Circuit City refers to the retail operations bearing the Circuit City
name and to all related operations such as product service and First
North American National Bank.

Circuit City Group refers to the Circuit City operations, the
Company's investment in Digital Video Express, LP and related
operations and the retained interest in the equity value of the
CarMax Group.

CarMax Group and CarMax refer to retail locations bearing the CarMax
name and to all related operations such as First North American
Credit Corporation.

Circuit City Group:

This section describes the Circuit City business and the Company's
investment in Digital Video Express, LP and related operations. It excludes the
retained interest in the CarMax business, which is discussed separately
beginning on page 6. Divx is discussed in more detail at the end of the Circuit
City Group section on page 6.

General. Circuit City is the nation's largest retailer of brand-name
consumer electronics and major appliances and a leading retailer of personal
computers and entertainment software. It sells video equipment, including
televisions, digital satellite systems, video cassette recorders, camcorders and
digital video disc players; audio equipment, including home stereo systems,
compact disc players, tape recorders and tape players; mobile electronics,
including car stereo systems and security

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systems; home office products, including personal computers, printers, software
and facsimile machines; other consumer electronics products, including cellular
phones, telephones and portable audio and video products; entertainment
software; and major appliances, including washers, dryers, refrigerators,
microwave ovens and ranges.

Each Circuit City store location follows detailed operating
procedures and merchandising programs. Included are procedures for inventory
maintenance, advertising, customer relations, store administration, merchandise
display, store security and the demonstration and sale of products. Merchandise
lines vary from location to location based on store size and market
characteristics. Most merchandise is supplied directly to the stores by regional
warehouse distribution facilities.

Expansion. As of April 30, 1998, Circuit City operated 558 retail
locations throughout the United States. In fiscal 1999, Circuit City expects to
open approximately 48 additional Superstores. Circuit City began its expansion
into the metropolitan New York market in fiscal 1998 and will continue this
expansion with the addition of approximately 15 Superstores in fiscal 1999.
Circuit City estimates that it has the opportunity to open approximately 250
additional stores. Circuit City's goal is to maximize profitability in each
market it serves by capturing large market shares that produce high sales
volumes across a broad merchandise mix.

Merchandising. Because management believes that local markets have
individual characteristics which vary greatly by the advertising, merchandising
and pricing strategies of competitors, Circuit City has organized its marketing
function to focus on markets with similar competitive conditions. Circuit City's
operating regions benefit from a centralized buying organization. The central
buying staff reduces costs by purchasing in large volumes, structures a sound
basic merchandising program and is supported by advanced management information
and distribution systems.

Circuit City's merchandising strategy emphasizes a broad selection of
products, including the industry's newest technologies, and a wide range of
prices. Merchandise mix and displays are controlled centrally to help ensure a
high level of consistency from store to store. Merchandise pricing and selling
strategies vary by market to reflect competitive conditions.

Although suggested retail prices are established by the corporate
merchandising department, each store manager is responsible for shopping the
local competition on a regular basis and is empowered to adjust retail prices to
meet in-market conditions. As part of its competitive strategy, Circuit City
advertises low prices and provides each customer with a low-price guarantee.
Circuit City will beat any price from a local store stocking the same new item,
available for sale with a manufacturer's warranty and in a factory-sealed box.
In most cases, if a customer finds a lower price, including Circuit City's own
sale price, within 30 days, Circuit City will refund 110 percent of the
difference to the customer.

Suppliers. During fiscal 1998, Circuit City's 10 largest suppliers
accounted for approximately 52 percent of merchandise purchased. Circuit City's
major suppliers include Sony Electronics, Thomson, Panasonic, Whirlpool, Compaq,
JVC, Packard Bell, Hewlett Packard, Sony Peripheral and Hitachi. Brand-name
advertised products are sold by all of Circuit City's retail locations. Circuit
City has no significant long-term contracts for the purchase of merchandise.

In the past, Circuit City has not experienced any continued or
ongoing difficulty obtaining satisfactory sources of supply and believes that
adequate sources of supply exist for the types of merchandise sold in its
stores.

Advertising. Circuit City relies on considerable amounts of
advertising to maintain high levels of consumer awareness. Advertising
expenditures were 4.6 percent of sales in fiscal 1998, 4.8 percent of sales in
fiscal 1997 and 4.7 percent of sales in fiscal 1996. Circuit City is generally
one of the largest newspaper advertisers in the markets that it serves. In the
first half of calendar 1997, Circuit City ranked as the nation's leading
specialty retail advertiser. Circuit City primarily uses print advertising,
including multi-page vehicles and run-of-press newspaper ads, for Superstore and
electronics-only store advertising. Circuit City emphasizes the use of
multi-page vehicles to allow a more extensive presentation of the broad
selection of products and price ranges it carries. These multi-page vehicles are
generally distributed in newspapers. Circuit City advertisements are regularly
seen in USA Today and on top-rated sports and entertainment programs.

Competition. Due to difficult industry conditions over the past three
years, competitors have closed stores, declared bankruptcy and curtailed their
expansion rates. Nevertheless, the brand-name consumer electronics and major
appliance business remains highly competitive. Circuit City's competitors
include other full-service retailers, self-service retailers, specialty
retailers with differing product selections and services, general merchandise
retailers and local independent operators.

Circuit City uses selection, service and pricing to differentiate
itself from the competition. As part of its competitive strategy, Circuit City
Superstores offer a broad product selection of top-quality merchandise that
includes 3,200 to 4,000

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name-brand items (excluding music software), depending
on the selling square footage of the Superstore. Professionally trained sales
counselors, convenient credit options, factory-authorized product repair, home
delivery, installation centers for automotive electronics, toll-free customer
service lines and the return, exchange and no-lemon policies in place, reflect a
strong commitment to customer service. Circuit City strives to maintain highly
competitive prices and offers every customer the low-price guarantee previously
described.

Customer Satisfaction. Extensive market research is conducted to
measure Circuit City's customer service record and to refine its consumer offer.
Over 300,000 customer surveys are conducted each year to track satisfaction
among Circuit City's existing customers. These surveys, conducted from customer
transaction records, measure satisfaction with all points of interaction,
including sales counselors, cashiers, warehouse staff, Roadshop installers, home
delivery personnel and product service specialists. Quick feedback enables
management to identify issues that need to be addressed, ensuring that store and
individual performance remain focused on providing the highest possible level of
customer service.

Training. Circuit City staffs its Superstores with commissioned sales
counselors, support personnel (cashiers and stockpersons), a store manager, one
or more sales managers and an operations manager. New sales counselors complete
an in-market training program focused on product knowledge, customer service and
store operations. These programs also provide experienced Associates with
ongoing training in new technologies and merchandising opportunities. Market
training facilities are utilized for classroom sessions taught by professional
trainers, and a state-of-the-art, in-house video studio produces video-based
training materials. Formalized training for store, sales and operations managers
focuses on human resource management, sales management and critical operating
procedures. Individual development plans address personal training needs, giving
Associates advancement opportunity.

Consumer Credit. Because consumer electronics, personal computers and
major appliances represent relatively large purchases for the average consumer,
Circuit City's business is affected by consumer credit availability, which
varies with the state of the economy and the location of a particular store. In
fiscal 1998, approximately 14 percent of Circuit City's total sales were made
through its private-label credit card and 46 percent through third-party credit
sources.

In fiscal 1991, the Company established First North American National
Bank to issue its private-label credit card. The credit card finance operation
is located in Marietta, Ga. This credit program enhances customer service with
increased credit availability, on-line links between the stores and the
operation and better control over customer interactions. Interfacing FNANB with
Circuit City's point-of-sale (POS) system has produced a rapid customer credit
approval process. A customer's application can be electronically scored, and
qualified customers can generally receive approval in under one minute. In
addition to increased credit availability, the private-label credit card program
provides Circuit City with additional marketing opportunities, including direct
mail campaigns to credit card customers and special financing programs for
promotions. FNANB's credit extension, customer service and collection operations
are fully automated with state-of the-art technology to maintain a high level of
profitability and customer service. This technology aids FNANB's collection
philosophy of contacting cardholders in the preliminary days of delinquency to
resolve any past due status.

FNANB also manages a growing bankcard portfolio. Receivables
generated by both the private-label credit card and bankcard programs are sold
to non-affiliated entities under asset securitization programs.

Systems. Circuit City's in-store POS system maintains an on-line
record of all transactions and allows management to track performance by region,
store and individual sales counselor. The information gathered by the system
supports automatic replenishment of in-store inventory from the regional
distribution centers and is incorporated into product buying decisions. The POS
system is interfaced with the FNANB credit approval system. In the stores,
electronic signature capture for all credit card purchases, bar-code scanning
for product returns and repairs, automatic price tag printing for price changes
and computerized home delivery scheduling enhance Circuit City's customer
service, eliminating time-consuming administrative tasks for store Associates
and reducing costs through smoother store-level execution.

Circuit City's Customer Service Information System maintains an
on-line history of customer purchases and enables sales counselors to better
assist customers with purchases by ensuring that new products can be integrated
with existing products in the home. This system also facilitates product returns
and product repair.

Distribution. At April 30, 1998, Circuit City operated 10 automated
electronics distribution centers. These centers are designed to serve stores
within a 500-mile range. They utilize conveyor systems and laser bar-code
scanners to reduce labor requirements, prevent inventory damage and maintain
inventory control. Circuit City also operates smaller distribution centers
handling primarily appliances and larger electronics products. Management
believes that the use of the distribution centers enables it to efficiently
distribute a broad selection of merchandise to its stores, reduce inventory
requirements at

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individual stores, benefit from volume purchasing and maintain
accounting control. Circuit City also operates an automated, centralized
distribution center for music software. Most of Circuit City's Superstore and
electronics-only store merchandise is distributed through its distribution
centers.

Service. Circuit City offers service and repair for nearly all the
products it sells. Customers also are able to purchase extended warranty plans
on most of the merchandise Circuit City sells.

At April 30, 1998, Circuit City had 37 regional, factory-authorized
repair facilities. To meet customer needs, merchandise that requires service or
repair usually is moved by truck from the stores to the nearest regional service
facility and is returned to the customer at the store after repair. Circuit City
also has in-home technicians who service large items not conveniently carried to
a store.

Extended warranty plans provide coverage beyond the normal
manufacturer's warranty period, usually with terms of coverage (including the
manufacturer's warranty period) between 12 and 60 months. Circuit City sells two
extended warranty programs on behalf of unrelated third parties that provide
these plans for merchandise sold by Circuit City and other retailers. One of
these programs is sold in most major markets and features in-home service for
personal computer products. The second program covers consumer electronics and
major appliances and was offered by approximately 85 percent of Circuit City
Superstores at April 30, 1998. Circuit City sells its own extended warranty
contracts in markets where the third-party programs are not permitted.

Seasonality. Like many retail businesses, Circuit City's sales are
greater in the fourth quarter of the fiscal year than in other periods of the
fiscal year because of holiday buying patterns. A corresponding pre-seasonal
inventory build-up is associated with this sales volume. This increased sales
volume results in a lower ratio of fixed costs to sales and produces a higher
ratio of operating income to sales in the fourth fiscal quarter. Circuit City's
sales for the fourth fiscal quarter (which includes the Christmas season) were
$2,585,969,000 in fiscal 1998, $2,282,625,000 in fiscal 1997 and $2,180,506,000
in fiscal 1996. Fourth quarter sales represented approximately 32 percent of
total sales in fiscal 1998, 1997 and 1996.

Divx. In September 1997, the Company announced plans to invest an
additional $100 million in Digital Video Express, LP, a partnership formed to
develop and launch a system that enhances current digital video disc technology
to provide the consumer with the most convenient home movie rental experience to
date.

The $100 million commitment, combined with a previous investment of
$30 million, gives Circuit City Stores, Inc. approximately two-thirds of the
ownership in Divx. The minority ownership interest is held by the prominent law
firm Ziffren, Brittenham, Branca & Fischer. The Company's investment in Divx is
allocated to the Circuit City Group and is reflected in the Group's financial
statements.

Digital Video Express, LP has secured agreements with Disney,
Paramount, Universal, Twentieth Century Fox, Metro-Goldwyn-Mayer and DreamWorks
SKG to provide titles, including all new titles, for release on Divx discs on
the same day they are available for rental on VHS tape. Zenith, Thomson,
Matsushita, JVC, Pioneer and Harman Kardon have announced plans to manufacture
DVD players with the Divx feature.

Divx is a concept that offers the consumer a convenient no-return,
rental-like system. Divx allows consumers to purchase special, limited-play
discs that include a single two-day viewing period which begins when the disc is
placed in the machine and the "play" button is pressed. Unlike typical tape
rentals, a Divx disc never has to be returned to the store, therefore, the
consumer will not incur a late fee. Also, since the disc is never returned,
consumers are able to create a cost effective home movie library. After the
initial two-day viewing period, additional viewing periods may be purchased by
placing the disc back in the player, hitting play and authorizing the additional
charge using the simple on-screen menu. Each player counts the number of
additional viewing periods and once a month, in the middle of the night, sends
the information toll free to the Divx billing computer.

After the first quarter of fiscal 1999, management intends to obtain
additional funding to support the national launch of Digital Video Express
products and the continuing operations of the partnership.

CarMax Group:

General. In 1993, CarMax pioneered the used-car Superstore concept
when it opened its first location in Richmond, Va. In fiscal 1998, the Company
continued the first phase of its national roll out plan. CarMax allows customers
to purchase vehicles the same way they can buy virtually every other retail
product, with friendly service and non-negotiated

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low prices. CarMax purchases, reconditions and sells used vehicles at each of
its stores and sells new vehicles at two of its Atlanta, Ga. locations under
franchise agreements with Chrysler Corporation.

Expansion. As of April 30, 1998, CarMax operated 19 Superstores in 11
markets. In fiscal 1999, CarMax plans to open approximately nine additional
Superstores.

Merchandising. Each CarMax location features a broad selection of
top-quality domestic and import used cars and trucks, with a wide range of
prices appealing to a large range of potential customers. CarMax's selection
covers the most popular brands, such as Toyota, Honda, Nissan, Chrysler, Ford
and General Motors, and specialty brands like BMW. To appeal to the vast array
of consumer preferences and budgets, CarMax offers its used vehicles under two
programs - the CarMax program and the ValuMax program. CarMax vehicles generally
are one to six years old, with less than 60,000 miles, and most are priced from
$7,000 to $35,000. Through the ValuMax program, CarMax sells high-quality used
vehicles that generally are more than six years old or have more than 60,000
miles, with most priced in a range from $3,000 to $12,000. To ensure that CarMax
quality standards are maintained, vehicles under both programs undergo a
comprehensive, certified quality inspection by CarMax service technicians.
CarMax backs its commitment to quality with a five-day or 250-mile, money-back
guarantee, subject to vehicles being returned in substantially the same
condition. A free 99-day limited warranty on each vehicle is offered in most
markets, with the remainder offering a free 30-day limited warranty on each
vehicle.

CarMax's used cars are priced at an average of $500 to $1,000 below
the National Automobile Dealers Association average retail book value. All
customers receive the same low price with no negotiating required. CarMax has
extended its "no-haggle" philosophy to every stage of the vehicle transaction,
including trade-ins, financing rates, extended warranty pricing and low vehicle
documentation fees. CarMax has replaced the traditional "trade-in" transaction
with a process in which trained CarMax buyers appraise any vehicle, usually in
30 minutes or less, and provide the vehicle's owner with a written guaranteed
cash offer that is good for seven days or 300 miles. The appraisal process is
available to everyone, whether or not the individual is purchasing a vehicle
from CarMax. In conjunction with Circuit City's in-store Roadshops, CarMax has
began selling electronic accessories at its store locations.

Suppliers. In stores open for more than one year, CarMax acquires
more than 50 percent of its used-vehicle inventory from consumers or from local
and regional auctions in the markets that it serves. This buying strategy
provides an inventory of makes and models that reflect the tastes of the market.
CarMax appraises and makes an offer to purchase any properly documented vehicle
from an individual. CarMax also acquires used vehicles directly from other
sources, including wholesalers, franchised and independent dealers and fleet
owners, such as leasing companies and rental companies. Based on consumer
acceptance of the appraisal process at existing CarMax stores and the experience
and success of CarMax to date in acquiring vehicles from auctions and other
sources, management believes that its sources of used vehicles will continue to
be sufficient to meet current needs and to support planned expansion.

New-car inventory for the Norcross, Ga. and Stockbridge, Ga.
locations are provided by Chrysler Corporation, under the terms of the existing
franchise agreements. CarMax has also signed a framework agreement with Nissan
Motor Corporation that will allow CarMax to own and operate Nissan franchises
throughout the United States.

Reconditioning. An integral part of CarMax's consumer offer is the
reconditioning process. In fiscal 1998, management decided to close its
centralized reconditioning facilities when experience proved that in-store
reconditioning is more efficient and produces a higher quality vehicle for the
consumer. On-site reconditioning by trained CarMax service technicians provides
direct accountability to the customer, eliminates potential transportation
damage to the vehicle and reduces transportation costs. Each CarMax location has
between 15 and 40 mechanical bays available for reconditioning.

Advertising. Television and radio advertisements are designed to
enhance consumer awareness of the CarMax name and key components of the CarMax
offer. These advertisements are distinctly different from those placed by most
auto dealers. Newspaper ads promote CarMax's selection and price leadership,
targeting consumers with immediate purchase intentions. Advertising expenditures
were 3.4 percent of sales in fiscal 1998, 2.3 percent of sales in fiscal 1997
and 2.6 percent of sales in fiscal 1996. During fiscal 1998, expansion left
CarMax with five markets that were partially stored for much of the second half
of the year. Because these new markets were not completely stored, initial
advertising levels were below those of a fully stored market. While this
approach worked successfully for the Atlanta entry two years ago, it did not
create sufficient consumer awareness to drive expected levels of consumer
traffic this year. As a consequence, CarMax instituted stepped-up awareness
building campaigns in the third quarter of fiscal 1998 and advertising expense
as a percentage of sales was above normal levels. These campaigns and continued
retail development are expected to help increase traffic and sales for these
stores.

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Franchises. CarMax operates its new-car dealerships in the Atlanta
market under two Sales and Service Agreements with the Chrysler Corporation. The
franchise agreements provide, among other things, that CarMax has the right and
obligation to sell specified models of new Chrysler-manufactured vehicles and
provide related parts and service solely at its Norcross and Stockbridge
locations. The franchise agreements impose various requirements on CarMax and
compliance with these requirements is closely monitored by Chrysler. The
franchise agreements may be terminated by Chrysler on generally not less than 60
days written notice for specified reasons.

CarMax has signed a framework agreement with Nissan Motor Corporation
that will allow CarMax to own and operate Nissan franchises throughout the
United States. The agreement provides that CarMax can acquire existing Nissan
franchises and obtain new franchise points and that Nissan franchises may be
integrated into CarMax Superstores or operated as stand-alone locations.

Competition. The $600 billion used- and new-car retail business is
highly competitive. In the used-vehicle market, CarMax competes with existing
franchised and independent dealers, rental companies and private parties. The
used-vehicle market also has attracted attention recently from a number of
public companies. Many franchised new-car dealerships also have increased their
focus on the used-vehicle market. Part of CarMax's business strategy is to
position itself as a low-price, low-cost operator in the industry.

In the new-vehicle market, CarMax competes with other franchised
dealers offering vehicles produced by the same or other manufacturers, and with
auto brokers and leasing companies. As is typical of such arrangements, CarMax's
existing franchise agreements with Chrysler do not guarantee exclusivity within
a specified territory. Aggressive discounting by manufacturers of new cars,
which typically occurs in the fall during the close-out of prior year models,
may result in lower retail sales prices and margins for used vehicles during
such discounting.

Customer Satisfaction. The elements of the CarMax offer are designed
to create a customer-friendly experience. The "no-haggle" pricing allows the
sales consultant to focus solely on the customer's needs. CarMax sales personnel
play a significant role in ensuring a customer-friendly sales process. All sales
consultants, including both full and part-time employees, are compensated solely
on a commission basis. The amount of the commission is a fixed dollar amount per
vehicle sold. The entire purchase process, including a test-drive and financing,
can be completed in less than one hour. Extensive market research is conducted
to measure CarMax's customer service record and to refine its consumer offer.

Training. All of CarMax's Associates complete an initial orientation
program entitled "The CarMax Way." This program is designed to ensure that all
CarMax Associates deliver on its mission statement, which is to provide all
customers with great quality cars at great prices with exceptional customer
service. At the completion of fiscal 1998, the 18 location general managers
averaged almost three years of CarMax experience and 10 years of prior
management experience. Each store has 10 to 15 inventory buyers. Each buyer
undergoes an 18-to-24 month apprenticeship under the tutelage of an experienced
buyer and appraises thousands of cars before making his or her first independent
purchase. All sales consultants complete two weeks of additional training and
receive ongoing training as new products and services become available. Most of
CarMax's service technicians are ASE-certified, the industry standard for
technician training.

Consumer Credit. CarMax provides prime financing for its customers'
vehicle purchases through its finance operation, First North American Credit
Corporation, or NationsBank. In addition, Chrysler Financial provides prime
financing to customers purchasing new vehicles at the two Atlanta locations.
Sub-prime financing is provided by third-party lenders such as TransSouth
Financial with no financial recourse to CarMax. Sales consultants use
AutoMation(R) to electronically submit financing applications and receive
responses from multiple lenders, generally in less than eight minutes.

Systems. AutoMation(R) is a unique, proprietary and enterprise-wide
inventory management system. Using a touch screen, CarMax customers can
electronically search the inventory for cars that meet their specific needs.
AutoMation(R) displays a color picture of the car and generates a vehicle
information sheet for customer reference. After the selection process is
complete, financing applications and purchase and title forms are submitted
electronically, reducing customer wait time. The inventory management system
includes bar codes on each vehicle and each on-site parking place. Daily
scanning tracks movement of vehicles on the lot. An electronic gate helps track
test drives for vehicles and sales consultants. This combination of systems
allows inventory and sales performance issues to be closely monitored, enabling
management to quickly resolve any issues.

Page 8 of 17

Service. During fiscal 1998, CarMax completed the rollout of retail
repair service to all locations. In fiscal 1999, CarMax will continue to grow
its retail service operations by building awareness with non-CarMax purchasers.
CarMax sells service contracts on behalf of unrelated third parties and, prior
to July 1997, sold its own contracts where third-party warranty sales were not
permitted. Contracts usually have terms of coverage between 12 and 72 months.

Seasonality. The business of CarMax is seasonal, with each location
generally experiencing more of its net sales in the first half of the fiscal
year. During the fall quarter, new-model-year introductions and discounting on
close-out vehicles can cause rapid depreciation on used-car prices, especially
on late-model vehicles. CarMax anticipates that the seasonality of its business
may vary from region to region as its operations expand geographically.

Employees:

On April 30, 1998, the Company had 29,622 hourly and salaried
employees and 16,940 sales employees working on a commission basis. None of the
Company's employees are subject to a collective bargaining agreement. Additional
personnel are employed during peak selling seasons. The Circuit City Group
accounted for 26,840 of the Company's hourly and salaried employees and 15,766
of the Company's sales employees working on a commission basis. The CarMax Group
accounted for 2,782 of the Company's hourly and salaried employees and 1,174 of
the Company's sales employees working on a commission basis.

Item 2. Properties.

At April 30, 1998, the Company's Circuit City retail operations were
conducted in 558 locations. The Company operates four Circuit City Superstore
formats with square footage and merchandise assortments tailored to population
and volume expectations for specific trade areas. The "D" format was developed
to serve the most populous trade areas. At the end of fiscal 1998, selling space
in the "D" format averaged approximately 23,000 square feet with total square
footage averaging 43,102. The "D" stores offer the largest merchandise
assortment of all the formats. The "C" format constitutes the largest percent of
the store base. At the end of fiscal 1998 selling square footage in this format
averaged 15,000 square feet with total square footage for all "C" stores
averaging 34,093. The "B" format is often located in smaller markets or in trade
areas that are on the fringes of larger metropolitan markets. At the end of
fiscal 1998, selling space in these stores averaged approximately 12,000 square
feet with an average total square footage of 26,251. The "B" stores offer a
broad merchandise assortment that maximizes return on investment in these lower
volume areas. The "A" format serves the least populated trade areas. Selling
space in these stores averaged approximately 9,600 square feet at the end of
fiscal 1998, and total square footage averaged 19,329. The "A" stores feature a
layout, staffing levels and merchandise assortment that creates high
productivity in the smallest markets.

The four electronics-only stores offer the Company's full line of
consumer electronics and a limited selection of major appliances. Selling space
in these stores averages approximately 4,000 square feet with an average total
square footage of approximately 9,000. The Company's 52 mall-based Circuit City
Express stores are located in regional malls, are approximately 2,000 to 3,000
square feet in size and sell leading-edge technology.

The Company's CarMax operations were conducted in 19 locations as of
April 30, 1998. The Company operates three different store formats, which vary
in acreage, vehicle assortment and facility square footage depending on local
market size and consumer demands. For the current store base, square footage
averages 82,926 for "C" stores, 68,261 for "B" stores and 47,521 for "A" stores.
Management believes that smaller store formats are more productive and expects
that over the long term the majority of locations will be "A" and "B" stores.
Going forward, a typical "C" store will have 20 acres to 25 acres with 650
spaces to 800 spaces for saleable inventory; "B" sites will generally have 17
acres to 20 acres and 550 spaces to 700 spaces; and "A" stores will have 11
acres to 17 acres and 350 spaces to 600 spaces. Virtually all sites can
accommodate a new-car franchise, either in the existing spaces or through
pavement of small amounts of surplus acreage.

Page 9 of 17

The following table summarizes the Company's Circuit City and CarMax
stores as of April 30, 1998:

Circuit City Group CarMax Group
Superstores Electronics - Mall Superstores
------------------------ -------------------
D C B A Only Stores Total C B A Total
- - - - ---- ------ ----- ------------------- -----
Alabama 1 4 - - - 1 6 - - - -
Arizona 2 6 1 - - 1 10 - - - -
Arkansas - 2 - - - - 2 - - - -
California 16 51 11 2 - 4 84 - - - -
Colorado 5 2 1 1 - - 9 - - - -
Connecticut 3 2 1 - - 1 7 - - - -
Delaware - 1 - - - 1 2 - - - -
District of Columbia - - - - - 1 1 - - - -
Florida 5 23 7 - - 1 36 1 3 1 5
Georgia 4 7 4 - - 4 19 1 - 2 3
Hawaii 1 - - - - - 1 - - - -
Idaho 1 - - 1 - - 2 - - - -
Illinois 6 19 4 - - 4 33 1 - 1 2
Indiana 1 5 2 1 - - 9 - - - -
Kansas 1 3 - - - - 4 - - - -
Kentucky - 5 - - - - 5 - - - -
Louisiana - 5 - 1 - 1 7 - - - -
Maine - - 1 - - - 1 - - - -
Maryland 1 12 2 - 1 4 20 1 - - 1
Massachusetts 1 9 3 - - 6 19 - - - -
Michigan 8 6 4 2 - 1 21 - - - -
Minnesota 1 7 1 - - 3 12 - - - -
Mississippi - 1 - - - - 1 - - - -
Missouri 1 9 - - - 1 11 - - - -
Nebraska 1 1 - - - - 2 - - - -
Nevada 1 3 - - - - 4 - - - -
New Hampshire - 4 - - - 2 6 - - - -
New Jersey - 5 - - - - 5 - - - -
New Mexico 1 - - - - - 1 - - - -
New York 9 6 2 1 - 2 20 - - - -
North Carolina 6 5 4 1 - 2 18 - 1 1 2
Ohio 7 12 5 - - 3 27 - - - -
Oklahoma - 2 1 - - - 3 - - - -
Oregon 2 5 - 1 - - 8 - - - -
Pennsylvania 2 11 2 2 - 2 19 - - - -
Rhode Island - 1 - - - - 1 - - - -
South Carolina 2 4 1 - - 1 8 - - - -
Tennessee 4 5 1 2 1 - 13 - - - -
Texas 7 27 4 6 - 2 46 2 1 2 5
Utah 5 - - - - - 5 - - - -
Vermont - - 1 - - - 1 - - - -
Virginia 2 13 5 5 - 4 29 - - 1 1
Washington 4 3 3 1 - - 11 - - - -
West Virginia - - - - 2 - 2 - - - -
Wisconsin 4 2 1 - - - 7 - - - -
-----------------------------------------------------------------------------------------------
115 288 72 27 4 52 558 6 5 8 19
===============================================================================================

Of the stores open at April 30, 1998, the Company owns 13 Circuit
City store locations and four CarMax store locations. The Company leases the
remaining 545 Circuit City locations and 15 CarMax locations. During fiscal
1999, the Company anticipates entering into sale-leaseback transactions for 10
of the Circuit City locations and for all the CarMax locations that were owned
by the Company and open as of April 30, 1998.

Page 10 of 17

For information with respect to obligations for Circuit City leases,
see note 10 of the Notes to Circuit City Group Financial Statements on page 54
of the Company's 1998 Annual Report to Stockholders, which is incorporated
herein by reference. For information with respect to obligations for CarMax
leases, see note 11 of the Notes to CarMax Group Financial Statements on page 72
of the Company's 1998 Annual Report to Stockholders, which is incorporated
herein by reference.

The Company owns a 388,000 square-foot consumer electronics/appliance
distribution center in Doswell, Va., and a 387,000 square-foot consumer
electronics/appliance distribution center in Atlanta, Ga. These distribution
centers have been financed with Industrial Development Revenue Bonds.

The Company owns most of the land but leases the three buildings in
which its corporate headquarters is located. The Company leases space for all
warehouse, service and office facilities except for the aforementioned
properties.

Item 3. Legal Proceedings.

In the normal course of business, the Company is involved in various
legal proceedings. Based upon the Company's evaluation of the information
presently available, management believes that the ultimate resolution of any
such proceedings will not have a material adverse effect on the Company's
financial position, liquidity or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.

No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year ended February 28, 1998.

Executive Officers of the Company.

The following table identifies the present executive officers of the
Company. The Company is not aware of any family relationship between any
executive officers of the Company or any executive officer and any director of
the Company. All executive officers are generally elected annually and serve for
one year or until their successors are elected and qualify. The next general
election of officers will occur in June 1998.

Name Age Office

Richard L. Sharp 51 Chairman of the Board and
Chief Executive Officer

W. Alan McCollough 48 President and
Chief Operating Officer

Richard S. Birnbaum 45 Executive Vice President,
Operations

Dennis J. Bowman 44 Senior Vice President and
Chief Information Officer

W. Stephen Cannon 46 Senior Vice President and
General Counsel

Michael T. Chalifoux 51 Senior Vice President,
Chief Financial Officer and
Corporate Secretary

John A. Fitzsimmons 55 Senior Vice President,
Administration

John W. Froman 44 Senior Vice President,
Merchandising

W. Austin Ligon 47 Senior Vice President,
Automotive

Jonathan T. M. Reckford 35 Senior Vice President,
Corporate Planning and Communications

Jeffrey S. Wells 52 Senior Vice President,
Human Resources

Page 11 of 17

Mr. Sharp is a director and a member of the Company's executive
committee. He joined the Company in 1982 as executive vice president and was
elected president in 1984, chief executive officer in 1986, and chairman of the
board in 1994.

Mr. McCollough joined the Company in 1987 as general manager of
corporate operations. He was elected assistant vice president in 1989, vice
president and Central Division president in 1991, senior vice president -
merchandising in 1994, and president and chief operating officer in 1997.

Mr. Birnbaum joined the Company in 1972. He was elected vice
president in 1985, Central Division president in 1986, senior vice president -
marketing in 1991, and executive vice president - operations in 1994.

Mr. Bowman joined the Company in 1996 as vice president and chief
information officer. He was elected senior vice president and chief information
officer in 1997. Prior to joining the Company, he had served as senior vice
president - information services for Rite Aid Corporation since 1993 and from
1984 to 1993 was a consultant with McKinsey & Company.

Mr. Cannon joined the Company in 1994 as senior vice president and
general counsel. Prior to joining the Company, he had been, since 1986, a
partner in Wunder, Diefenderfer, Ryan, Cannon & Thelen, a Washington, D.C., law
firm.

Mr. Chalifoux is a director and a member of the Company's executive
committee. He joined the Company in 1983 as corporate controller and was elected
vice president and chief financial officer in 1988. He was elected senior vice
president in 1991 and became corporate secretary in 1993.

Mr. Fitzsimmons joined the Company in 1987 as senior vice president -
administration.

Mr. Froman joined the Company in 1986 as a store manager and general
manager in training. In 1987, he was promoted to general manager and in 1989 was
named assistant vice president. He was promoted to director of corporate
operations in 1990 and in 1992 added the title of vice president. In 1994, he
was elected president of the Company's Central Division until 1997 when he was
named senior vice president - merchandising.

Mr. Ligon joined the Company in 1990 as vice president - corporate
planning and communications. He was elected senior vice president - corporate
planning and communications in 1991, senior vice president - corporate planning
and automotive in 1994, and senior vice president-automotive and CarMax
president in 1996.

Mr. Reckford joined the Company in 1995 as vice president - corporate
planning and communications. He was elected senior vice president - corporate
planning and communications in 1996. Prior to joining the Company, he was
director of business planning and development for Disney Design and Development
since 1991.

Mr. Wells joined the Company in 1996 as senior vice president - human
resources. Prior to joining the Company, he had served as a senior vice
president of Toys "R" Us, Inc. since 1992.

Part II

With the exception of the information incorporated by reference from
the 1998 Annual Report to Stockholders in Item 2 of Part I and Items 5, 6, 7, 7a
and 8 of Part II and Item 14 of Part IV of this Form 10-K, the Company's 1998
Annual Report to Stockholders is not to be deemed filed as a part of this
Report.

Item 5. Market for the Company's Common Equity and Related Stockholder
Matters.

Incorporated herein by reference is the information appearing under
the heading "Common Stock" on page 24 of the Company's 1998 Annual Report to
Stockholders.

As of May 1, 1998, there were 7,004 shareholders of record of the
Circuit City Group common stock and 337 shareholders of record of the CarMax
Group common stock.

Item 6. Selected Financial Data.

Incorporated herein by reference is the information appearing under
the heading "Reported Historical Information" on page 19 of the Company's 1998
Annual Report to Stockholders.

Page 12 of 17

Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.

Incorporated herein by reference is the information appearing under
the heading "Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 19 through 24 for Circuit City Stores, Inc., pages
40 through 43 for Circuit City Group, and pages 58 through 61 for the CarMax
Group of the Company's 1998 Annual Report to Stockholders.

Item 7a. Quantitative and Qualitative Disclosure about Market Risk.

Incorporated herein by reference is the information appearing under
the sub-heading "Market Risk" on page 23 for Circuit City Stores, Inc., page 43
for the Circuit City Group and page 61 for the CarMax Group of the Company's
1998 Annual Report to Stockholders.

Item 8. Financial Statements and Supplementary Data.

Incorporated herein by reference is the information appearing under
the headings "Consolidated Statements of Earnings," "Consolidated Balance
Sheets," "Consolidated Statements of Cash Flows," "Consolidated Statements of
Stockholders' Equity," "Notes to Consolidated Financial Statements," and
"Independent Auditors' Report," on pages 26 through 39 of the Company's 1998
Annual Report to Stockholders.

Incorporated herein by reference is the information appearing under
the headings "Circuit City Group Statements of Earnings," "Circuit City Group
Balance Sheets," "Circuit City Group Statements of Cash Flows," "Circuit City
Group Statements of Group Equity," "Notes to Circuit City Group Financial
Statements," and "Independent Auditors' Report," on pages 44 through 57 of the
Company's 1998 Annual Report to Stockholders.

Incorporated herein by reference is the information appearing under
the headings "CarMax Group Statements of Operations," "CarMax Group Balance
Sheets," "CarMax Group Statements of Cash Flows," "CarMax Group Statements of
Group Equity (Deficit)," "Notes to CarMax Group Financial Statements," and
"Independent Auditors' Report," on pages 62 through 73 of the Company's 1998
Annual Report to Stockholders.

Incorporated herein by reference is the information appearing under
the heading "Quarterly Financial Data (Unaudited)" on page 39 for Circuit City
Stores, Inc., page 56 for Circuit City Group and page 73 for the CarMax Group of
the Company's 1998 Annual Report to Stockholders.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.
Part III

With the exception of the information incorporated by reference from
the Company's Proxy Statement in Items 10, 11 and 12 of Part III of this Form
10-K, the Company's Proxy Statement dated May 12, 1998, is not to be deemed
filed as a part of this Report.

Item 10. Directors and Executive Officers of the Company.

The information concerning the Company's directors required by this
Item is incorporated by reference to the section entitled "Item One - Election
of Directors" appearing on pages 2 through 4 of the Company's Proxy Statement
dated May 12, 1998.

The information concerning the Company's executive officers required
by this Item is incorporated by reference to the section in Part I hereof
entitled "Executive Officers of the Company" appearing on pages 11 and 12.

The information concerning compliance with Section 16(a) of the
Securities Exchange Act of 1934 required by this Item is incorporated by
reference to the section entitled "Section 16(a) Compliance" appearing on page
16 of the Company's Proxy Statement dated May 12, 1998.

Page 13 of 17

Item 11. Executive Compensation.

The information required by this Item is incorporated by reference to
the sections entitled "Executive Compensation," "Employment Agreements and
Change-in-Control Arrangements," and "Compensation of Directors," appearing on
pages 8 through 10 and pages 14 through 16 of the Company's Proxy Statement
dated May 12, 1998.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The information required by this Item is incorporated by reference to
the section entitled "Beneficial Ownership of Securities" appearing on pages 5
through 7 of the Company's Proxy Statement dated May 12, 1998.

Item 13. Certain Relationships and Related Transactions.

None.
Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) The following documents are filed as part of this Report:

1. Financial Statements. The following Financial Statements of
Circuit City Stores, Inc., the Circuit City Group and the CarMax
Group, and the related notes to Financial Statements and the
Independent Auditors' Reports are incorporated by reference to
pages 26 through 39 for Circuit City Stores, Inc., pages 44
through 57 for the Circuit City Group, and pages 62 through 73
for the CarMax Group of the Company's 1998 Annual Report to
Shareholders:

Consolidated Statements of Earnings for the fiscal years ended
February 28, 1998, February 28, 1997, and February 29, 1996.

Circuit City Group Statements of Earnings for the fiscal years
ended February 28, 1998, February 28, 1997, and February 29,
1996.

CarMax Group Statements of Operations for the fiscal years ended
February 28, 1998, February 28, 1997, and February 29, 1996.

Consolidated Balance Sheets at February 28, 1998, and February
28, 1997.

Circuit City Group Balance Sheets at February 28, 1998, and
February 28, 1997.

CarMax Group Balance Sheets at February 28, 1998, and February
28, 1997.

Consolidated Statements of Cash Flows for the fiscal years ended
February 28, 1998, February 28, 1997, and February 29, 1996.

Circuit City Group Statements of Cash Flows for the fiscal years
ended February 28, 1998, February 28, 1997, and February 29,
1996.

CarMax Group Statements of Cash Flows for the fiscal years ended
February 28, 1998, February 28, 1997, and February 29, 1996.

Consolidated Statements of Stockholders' Equity for the fiscal
years ended February 28, 1998, February 28, 1997, and February
29, 1996.

Circuit City Group Statements of Group Equity for the fiscal
years ended February 28, 1998, February 28, 1997, and February
29, 1996.

CarMax Group Statements of Group Equity (Deficit) for the fiscal
years ended February 28, 1998, February 28, 1997, and February
29, 1996.

Page 14 of 17

Notes to Consolidated Financial Statements.

Notes to Circuit City Group Financial Statements.

Notes to CarMax Group Financial Statements.

Independent Auditors' Report, Circuit City Stores, Inc.

Independent Auditors' Report, Circuit City Group.

Independent Auditors' Report, CarMax Group.

2. Financial Statement Schedule. The following financial statement
schedules of Circuit City Stores, Inc., Circuit City Group and
CarMax Group for the fiscal years ended February 28, 1998,
February 28, 1997, and February 29, 1996, are filed as part of
this Report and should be read in conjunction with the Financial
Statements of Circuit City Stores, Inc., Circuit City Group and
CarMax Group.

II Valuation and Qualifying Accounts and Reserves, Circuit City Stores, Inc. S-1

II Valuation and Qualifying Accounts and Reserves, Circuit City Group S-1

II Valuation and Qualifying Accounts and Reserves, CarMax Group S-1

Independent Auditors' Report on Circuit City Stores, Inc. Financial Statement Schedule S-2

Independent Auditors' Report on Circuit City Group Financial Statement Schedule S-2

Independent Auditors' Report on CarMax Group Financial Statement Schedule S-2

Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be
set forth therein is included in the Consolidated Financial
Statements or Notes thereto.

3. Exhibits. The Exhibits listed on the accompanying Index to
Exhibits immediately following the financial statement schedules
are filed as part of, or incorporated by reference into, this
Report.

(b) Reports on Form 8-K.

The Company did not file any reports on Form 8-K during the last
fiscal quarter covered by this Report.

Page 15 of 17

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

CIRCUIT CITY STORES, INC.
(Registrant)

By s/ Richard L. Sharp
Richard L. Sharp
Chairman of the Board and
Chief Executive Officer

By s/ Michael T. Chalifoux
Michael T. Chalifoux
Senior Vice President,
Chief Financial Officer and
Corporate Secretary

By s/ Philip J. Dunn
Philip J. Dunn
Vice President, Treasurer,
Corporate Controller and
Chief Accounting Officer

May 27, 1998

Page 16 of 17

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:

Signature Title Date

Michael T. Chalifoux* Director May 27, 1998
Michael T. Chalifoux

Richard N. Cooper* Director May 27, 1998
Richard N. Cooper

Barbara S. Feigin* Director May 27, 1998
Barbara S. Feigin

Robert S. Jepson, Jr.* Director May 27, 1998
Robert S. Jepson, Jr.

Hugh G. Robinson* Director May 27, 1998
Hugh G. Robinson

Walter J. Salmon* Director May 27, 1998
Walter J. Salmon

Mikael Salovaara* Director May 27, 1998
Mikael Salovaara

s/ Richard L. Sharp Director May 27, 1998
Richard L. Sharp

John W. Snow* Director May 27, 1998
John W. Snow

Edward Villanueva* Director May 27, 1998
Edward Villanueva

Alan L. Wurtzel* Director May 27, 1998
Alan L. Wurtzel

By: s/ Richard L. Sharp*
Richard L. Sharp,
Attorney-In-Fact

The original powers of attorney authorizing Richard L. Sharp and Michael T.
Chalifoux, or either of them, to sign this annual report on behalf of certain
directors and officers of the Company are included as Exhibit 24.

Page 17 of 17

S-1
Schedule II

CIRCUIT CITY STORES, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts and Reserves
(Amounts in thousands)

Balance at Charged Charge-offs Balance at
Beginning to less End of
Description of Year Income Recoveries Year

Consolidated:

Year ended February 29, 1996:
Allowance for doubtful accounts $ 6,737 $ 5,078 $ (1,790) $ 10,025
======== ======= ========= =========

Year ended February 28, 1997:
Allowance for doubtful accounts $ 10,025 $ 8,773 $ (3,402) $ 15,396
======== ======= ========= =========

Year ended February 28, 1998:
Allowance for doubtful accounts $ 15,396 $ 8,464 $ (5,554) $ 18,306
======== ======= ========= =========

Circuit City Group:

Year ended February 29, 1996:
Allowance for doubtful accounts $ 6,431 $ 4,599 $ (1,450) $ 9,580
======== ======= ========= =========

Year ended February 28, 1997:
Allowance for doubtful accounts $ 9,580 $ 6,817 $ (2,863) $ 13,534
======== ======= ========= =========

Year ended February 28, 1998:
Allowance for doubtful accounts $ 13,534 $ 5,616 $ (4,627) $ 14,523
======== ======= ========= =========

CarMax Group:

Year ended February 29, 1996:
Allowance for doubtful accounts $ 306 $ 479 $ (340) $ 445
======== ======= ========= =========

Year ended February 28, 1997:
Allowance for doubtful accounts $ 445 $ 1,956 $ (539) $ 1,862
======== ======= ========= =========

Year ended February 28, 1998:
Allowance for doubtful accounts $ 1,862 $ 2,848 $ (927) $ 3,783
======== ======= ========= =========

S-2

Independent Auditors' Report on Financial Statement Schedule

The Board of Directors
Circuit City Stores, Inc.:

Under date of April 3, 1998, we reported on the consolidated balance sheets of
Circuit City Stores, Inc. and subsidiaries (the Company) as of February 28, 1998
and 1997, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the fiscal years in the three-year period
ended February 28, 1998, as contained in the February 28, 1998 annual report to
stockholders. These consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year ended
February 28, 1998. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related Circuit City
Stores, Inc. financial statement schedule as listed in Item 14(a)2 of this Form
10-K. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.

In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

/s/KPMG Peat Marwick LLP

Richmond, Virginia
April 3, 1998

S-2

Independent Auditors' Report on Financial Statement Schedule

The Board of Directors
Circuit City Stores, Inc.:

Under date of April 3, 1998, we reported on the balance sheets of the Circuit
City Group as of February 28, 1998 and 1997, and the related statements of
earnings, group equity and cash flows for each of the fiscal years in the
three-year period ended February 28, 1998, as contained in the February 28, 1998
annual report to stockholders. Our report dated April 3, 1998 includes a
qualification related to the effects of not consolidating the CarMax Group with
the Circuit City Group as required by generally accepted accounting principles.
These financial statements and our report thereon are incorporated by reference
in the annual report on Form 10-K of Circuit City Stores, Inc. for the year
ended February 28, 1998. In connection with our audits of the aforementioned
financial statements, we also have audited the related Circuit City Group
financial statement schedule as listed in Item 14(a)2 of this Form 10-K. This
financial statement schedule is the responsibility of Circuit City Stores,
Inc.'s management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.

In our opinion, except for the effects of not consolidating the CarMax Group
with the Circuit City Group as discussed in the preceding paragraph, such
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.

/s/KPMG Peat Marwick LLP

Richmond, Virginia
April 3, 1998

S-2

Independent Auditors' Report on Financial Statement Schedule

The Board of Directors
Circuit City Stores, Inc.:

Under date of April 3, 1998, we reported on the balance sheets of the CarMax
Group as of February 28, 1998 and 1997, and the related statements of
operations, group equity (deficit) and cash flows for each of the fiscal years
in the three-year period ended February 28, 1998, as contained in the February
28, 1998 annual report to stockholders. These financial statements and our
report thereon are incorporated by reference in the annual report on Form 10-K
of Circuit City Stores, Inc. for the year ended February 28, 1998. In connection
with our audits of the aforementioned financial statements, we also have audited
the related CarMax Group financial statement schedule as listed in Item 14(a)2
of this Form 10-K. This financial statement schedule is the responsibility of
Circuit City Stores, Inc.'s management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.

In our opinion, such schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

s/KPMG Peat Marwick LLP

Richmond, Virginia
April 3, 1998

Circuit City Stores, Inc.

Annual Report on Form 10-K

INDEX TO EXHIBITS

(3) Articles of Incorporation and Bylaws

(a) Amended and Restated Articles of Incorporation of the
Company, effective February 3, 1997, filed as Exhibit
4.1 to the Company's Registration Statement on Form
S-8 (Registration No. 333-22759), filed on March 4,
1997, are expressly incorporated herein by this
reference.

(b) Articles of Amendment to the company's Amended and
Restated Articles of Incorporation, effective April
28, 1998, filed with the Commission as Exhibit 4 to
Registrant's Form 8-A filed April 28, 1998 (File No.
1-5767), are expressly incorporated herein by this
reference.

(c) Bylaws of the Company, as amended and restated August
19, 1997, filed as Exhibit 3(i) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
August 31, 1997, (File No. 1-5767) are expressly
incorporated herein by this reference.

(4) Instruments Defining the Rights of Security Holders, Including
Indentures

(a) Rights Agreement dated April 14, 1998, between the
Company and Norwest Bank Minnesota, N.A., as Rights
Agent, filed as Exhibit 1 to the Company's 8-A filed
on April 28, 1998, is expressly incorporated herein
by this reference.

(b) $100,000,000 term loan agreement dated July 28, 1994,
between the Company, the Long-Term Credit Bank of
Japan, Limited, as agent, and the banks named
therein. Pursuant to Item 601(b)(4)(iii) of
Regulation S-K, in lieu of filing a copy of such
agreement, the Company agrees to furnish a copy of
such agreement to the Commission upon request.

(c) First Amendment to Term Loan Agreement dated October
24, 1995, to the $100,000,000 term loan agreement
dated July 28, 1994, between the Company, the
Long-Term Credit Bank of Japan, Limited, as agent,
and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.

(d) Second Amendment to Term Loan Agreement dated August
21, 1996, to the $100,000,00 term loan agreement
dated July 28, 1994, between the Company, the
Long-Term Credit Bank of Japan, Limited, as agent,
and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.

(e) $175,000,000 term loan agreement dated May 26, 1995,
between the Company, the LTCB Trust Company, as
agent, and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.

(f) First Amendment to Term Loan Agreement dated October
24, 1995, to the $175,000,000 term loan agreement
dated May 26, 1995, between the Company, the LTCB
Trust

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Company, as agent, and the banks named therein.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in
lieu of filing a copy of such agreement, the Company
agrees to furnish a copy of such agreement to the
Commission upon request.

(g) $130,000,000 term loan agreement dated June 14, 1996,
between the Company, the Royal Bank of Canada, as
agent, and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.

(h) $150,000,000 Credit Agreement dated August 31, 1996,
between the Company, Crestar Bank, as agent, and the
banks named therein. Pursuant to Item 601(b)(4)(iii)
of Regulation S-K, in lieu of filing a copy of such
agreement, the Company agrees to furnish a copy of
such agreement to the Commission upon request.

(i) First Amendment to Credit Agreement dated May 1,
1998, to the $150,000,000 Credit Agreement dated
August 31, 1996, between the Company, Crestar Bank,
as agent, and the banks named therein. Pursuant to
Item 601(b)(4)(iii) of Regulation S-K, in lieu of
filing a copy of such agreement, the Company agrees
to furnish a copy of such agreement to the Commission
upon request.

(10) Material Contracts*

(a) The Company's 1988 Stock Incentive Plan, filed as
Exhibit 10(c) to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1993,
(File No. 1-5767) is expressly incorporated herein by
this reference.

(b) Amendments to the Company's 1988 Stock Incentive Plan
filed as Exhibit 10(k) to the Company's Annual Report
on Form 10-K for the fiscal year ended February 29,
1990, (File No. 1-5767) are expressly incorporated
herein by this reference.

(c) Amendment to the Company's 1988 Stock Incentive Plan
filed as Exhibit 4(h) to the Company's Registration
Statement on Form S-8 (Registration No. 33-50144)
filed with the Commission on July 28, 1992, is
expressly incorporated herein by this reference.

(d) Amendment adopted February 20, 1997 to the Company's
1988 Stock Incentive Plan filed as Exhibit 10(d) to
the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1997 (File No. 1-5767)
is expressly incorporated herein by this reference.

(e) The Company's Amended and Restated 1989 Non-Employee
Directors' Stock Option Plan, filed as Exhibit A to
the Company's Definitive Proxy Statement dated May 9,
1997, for the Annual Meeting of Stockholders held on
June 17, 1997, is expressly incorporated herein by
this reference.

(f) Amendments adopted June 17, 1997, to the Company's
Amended and Restated 1989 Non-Employee Directors
Stock Option Plan filed as Exhibit 10(ii) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended May 31, 1997 is expressly incorporated
herein by this reference.

(g) Amendment adopted February 20, 1997 to the Company's
Amended and Restated 1989 Non-Employee Directors
Stock Option Plan filed as Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1997 (File No. 1-5767) is
expressly incorporated herein by this reference.

Page 2 of 4

(h) The Company's 1994 Stock Incentive Plan, as amended
as of January 24, 1997, filed as Annex III to the
Company's Definitive Proxy Statement dated December
24, 1996, for a Special Meeting of Shareholders held
on January 24, 1997, (File No. 1-5767) is expressly
incorporated herein by this reference.

(i) Letter agreement and non-compete agreement dated
January 30, 1996, (revised February 12, 1996),
between the Company and Alan L. Wurtzel filed as
Exhibit 10(g) to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1995,
(File No. 1-5767) is expressly incorporated herein by
this reference.

(j) Employment agreement between the Company and Richard
L. Sharp dated October 17, 1986, and amendment dated
August 1, 1989, to the employment agreement, filed as
Exhibit 10(m) to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1993,
(File No. 1-5767) is expressly incorporated herein by
this reference.

(k) Employment agreement dated June 1, 1988, between the
Company and John A. Fitzsimmons, filed as Exhibit
10(n) to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1989, (File No.
1-5767) is expressly incorporated herein by this
reference.

(l) Amendment dated August 1, 1989, to employment
agreement dated June 1, 1988, between the Company and
John A. Fitzsimmons, filed as Exhibit 10(o) to the
Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1993, (File No. 1-5767) is
expressly incorporated herein by this reference.

(m) Employment agreement dated May 25, 1989, between the
Company and Michael T. Chalifoux, filed as Exhibit
10(x) to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1991, (File No.
1-5767) is expressly incorporated herein by this
reference.

(n) Employment agreement dated April 24, 1995, between
the Company and W. Alan McCollough filed as Exhibit
10(l) to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1995, (File No.
1-5767), is expressly incorporated herein by this
reference.

(o) Amended and restated employment agreement dated May
12, 1995, between the Company and Richard S. Birnbaum
filed as Exhibit 10(s) to the Company's Annual Report
on Form 10-K for the fiscal year ended February 28,
1995, (File No. 1-5767) is expressly incorporated
herein by this reference.

(p) The Company's Annual Performance-Based Bonus Plan, as
amended as of January 24, 1997, filed as Annex IV to
the Company's Definitive Proxy Statement dated
December 24, 1996, for a Special Meeting of
Shareholders held on January 24, 1997, (File No.
1-5767) is expressly incorporated herein by this
reference.

(q) Program for deferral of director compensation
implemented October 1995 filed as Exhibit 10(i) to
the Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1995, (Filed No. 1-5767)
is expressly incorporated herein by this reference.

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(13) Annual Report to Stockholders

(21) Subsidiaries of the Company

(23) Consents of Experts and Counsel

Consent of KPMG Peat Marwick LLP to Incorporation by Reference of
Independent Auditors' Reports into the Company's Registration
Statements on Form S-8.

(24) Powers of Attorney

(27) Financial Data Schedule

* All contracts listed under Exhibit 10 are management contracts, compensatory
plans or arrangements of the Company required to be filed as an exhibit.

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