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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended February 28, 2005

OR

For the transition period from              to             

Commission File No.: 1-5767

CIRCUIT CITY STORES, INC.

(Exact name of registrant as specified in its charter)

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

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

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 (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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  ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

The aggregate market value of the registrant’s common shares held by non-affiliates as of August 31, 2004, which was the last business day of the registrant’s most recently completed second fiscal quarter, was $2,531,528,283 based upon the closing price of these shares as reported by the New York Stock Exchange on that date.

On March 31, 2005, the company had outstanding 188,274,230 shares of common stock.

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the company’s Definitive Proxy Statement dated May 13, 2005, furnished to shareholders of the company in connection with the 2005 Annual Meeting of Shareholders are incorporated by reference in Part III of this Annual Report on Form 10-K.

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PART I

Item 1. Business.

Circuit City Stores, Inc. is a leading specialty retailer of consumer electronics, home office products, entertainment software and related services. Circuit City was incorporated under the laws of the Commonwealth of Virginia in 1949. Its corporate headquarters are located at 9950 Mayland Drive, Richmond, Virginia. The company has two reportable segments: its domestic segment and its international segment. For fiscal 2005, net sales and operating revenues were $10.02 billion for the domestic segment and $454.9 million for the international segment. Prior to the second quarter of fiscal 2005, we had a third reportable segment, our finance operation.

The domestic segment is primarily engaged in the business of selling brand-name consumer electronics, personal computers, entertainment software and services in Circuit City Superstores and mall-based stores in the United States and via the Web at www.circuitcity.com. At February 28, 2005, the company’s domestic segment operated 612 Superstores and 5 mall-based stores in 158 U.S. media markets.

The international segment, which is comprised of the operations of InterTAN, Inc., is primarily engaged in the business of selling private-label and brand-name consumer electronics products in Canada. At February 28, 2005, the international segment conducted business through 966 retail stores and dealer outlets, which consisted of 521 stores operating under the trade name RadioShack^®, 331 dealer outlets, 88 Rogers Plus^® stores and 26 Battery Plus^® stores. In addition to the 966 retail stores and dealer outlets, the international segment conducts business through 64 wholesale relationships.

InterTAN’s stores operating under the trade name RadioShack typically incorporate a small store format and are strategically located in malls and shopping centers; each store provides the customer with convenience and readily available products and services to meet a wide range of consumer electronic needs, including digital technologies and unique electronic gadgets. Dealer outlets are independent retail businesses that operate under their own trade names but are permitted, under dealer agreements, to purchase any of the products sold by company-operated stores. The dealer agreements contain a sub-license permitting dealers to designate its consumer electronics department or business as a RadioShack Dealer. Rogers Plus stores are operated by the company and are dedicated primarily to the sale of wireless services, including related hardware, offered by Rogers Wireless, Inc. Battery Plus stores are operated by the company and sell batteries and other specialty consumer electronics products. The use of the term “company-operated stores” refers to our stores operating under the RadioShack, Rogers Plus and Battery Plus names.

All stores currently operating under license from RadioShack Corporation will be re-branded as “THE SOURCE BY CIRCUIT CITY” on or before June 30, 2005. See additional discussion in Item 3, Legal Proceedings, of this Annual Report on Form 10-K.

Additional discussion of Circuit City’s operating segments is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in Note 18, Segment Information, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

The company’s plan is to improve its core business and introduce a disciplined innovation process that will enable future growth. Stabilizing sales and driving improvements in profitability and working capital management are important steps in turning around the business. Circuit City must seek ways to expand its reach beyond loyal customers by finding new customers, providing new offerings and continually searching for new opportunities. To do this, the company has formalized an innovation organization and process to cultivate new ideas that will grow its business in ways it never before considered and create value for its customers and shareholders.

Acquisition of InterTAN, Inc.

In May 2004, Circuit City completed its acquisition of InterTAN, Inc. for cash consideration of $259.3 million, which includes transaction costs and is net of cash acquired of $30.6 million. In addition to giving Circuit City a greater product-sourcing capability and the ability to accelerate the offering of private-label merchandise to its customers, the acquisition of InterTAN gives Circuit City its first presence in the Canadian market. For information regarding the company’s risk associated with our international segment, see Forward-Looking Statements included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Translation of Financial Results included in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of this Annual Report of Form 10-K.

Sale of Finance Operations

In May 2004, the company completed the sale of its private-label finance operation, comprised of its private-label and co-branded Visa credit card programs, to Chase Card Services, formerly Bank One Corporation. Results from the private-label finance operation are included in finance income on the consolidated statements of operations. The company entered into a Consumer Credit Card Program Agreement under which Chase Card Services is offering private-label and co-branded credit cards to new and existing customers. The company is compensated under the arrangement primarily based on the number of new accounts opened less promotional financing costs that exceed a negotiated base amount. The earnings contribution from the Chase credit card program is included in net sales and operating revenues on the consolidated statement of operations.

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In November 2003, the company completed the sale of its bankcard finance operation, which included Visa and MasterCard credit card receivables and related cash reserves, to FleetBoston Financial. Results from the bankcard finance operation are presented as results from discontinued operations on the consolidated statements of operations. The sale agreement included a transition services agreement under which employees of the company’s finance operation continued to service the bankcard accounts until final conversion of the bankcard portfolio to FleetBoston, which occurred in April 2004. Through that date, FleetBoston reimbursed the company for operating costs incurred during the transition period. The company incurred severance costs ratably through the final conversion date.

Operations

Circuit City has a highly integrated business model, which allows customers to shop across numerous channels.

Domestic segment store operations are overseen by the president of our domestic retail stores. Domestic retail operations are divided into 10 regions, which are under the supervision of regional vice presidents. The 10 regions are comprised of 63 districts, which are overseen by district managers who regularly visit stores to monitor store operations and meet with store directors.

Domestic segment Superstores are typically staffed with 40 to 80 full-time and part-time Associates including

At February 28, 2005, the domestic segment had 42,425 hourly and salaried employees. None of these employees is subject to a collective bargaining agreement. The company may employ additional personnel during peak selling seasons. In fiscal 2004, the company outsourced the applicant screening process and reduced the time to hire a new store Associate by more than 50 percent and thus significantly decreased the time required to complete seasonal hiring. The company has a single hourly pay structure for the domestic segment’s non-management sales force.

International segment company-operated stores are divided into five regions, which are overseen by regional directors. The five regions are further divided into 28 districts, which are under the supervision of district managers who regularly visit stores to monitor store operations. Dealer outlets are divided into seven areas across Canada, each of which is under the supervision of an area sales manager.

International segment company-operated stores are typically staffed by 2 to 15 Associates, including full-time and part-time commissioned sales Associates and a store manager. At February 28, 2005, the international segment had 3,521 hourly and salaried employees. Approximately 109 of these employees, who are engaged in warehousing and distribution operations, are represented by a union. In April 2003, the terms of a three-year collective bargaining agreement were ratified with these employees. The company considers its relationship with these employees to be good.

Associates in our domestic and international segments receive frequent training and development through interactive e-learning courses, training workbooks and management-driven in-store mentoring. Training includes developing selling skills, product knowledge with an emphasis on new technology, customer service and store operations. Associates use Circuit City’s Web site as an additional training resource for product knowledge. Management training programs are designed to prepare the company’s leaders and include Web-based training, in-store activities and classroom instruction.

Merchandising

The company offers a broad selection of products and services through its stores, on the Web and via telephone. The major merchandise product categories are

Services are another important part of the company’s offering to consumers. Examples of the provided services include narrowband, broadband, wireless telephone, voice-over IP, digital video services, extended warranty programs, satellite radio, computer upgrades and repairs, car audio installation and in-home video installation.

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The company’s direct-to-consumer business has grown rapidly since the launch of its Web site in 1999. Through Circuit City Direct, which serves customers via circuitcity.com and 1-800-THE-CITY, customers have access to a wide selection of consumer electronics, technology and entertainment products and related services as well as around-the-clock customer service. Circuitcity.com offers more than 125,000 customer ratings and reviews of products, as well as in-depth product and technology information. The company re-launched its award-winning Web site in September 2004. The next-generation site offers improved navigation, ease of use and better merchandising. Customers may view real-time in-store inventory of products selected on circuitcity.com, purchase the products online, and pick up the products in a nearby store typically within one hour from the time of purchase.

To ensure consistency, each domestic store follows centrally-controlled, detailed operating procedures and merchandising programs, including procedures for inventory maintenance and merchandise displays. Merchandise pricing may vary by market to reflect local competitive conditions.

The international segment’s strategy focuses on a merchandise offering designed to grow both sales and gross profit margin. Fundamental to this plan is

Supply Chain

Circuit City relies on a best sourcing strategy. Depending on the type of product, the company procures merchandise from a variety of sources and methods, including new and existing vendors, reverse auctions and direct relationships with manufacturers. The company also utilizes its global sourcing capability gained through the acquisition of InterTAN. The company’s goal is to find the lowest priced products with the highest quality for customers.

As a retailer primarily of branded consumer electronics that relies upon its ability to offer consumers a comprehensive and attractive assortment of merchandise and services, Circuit City depends upon strong and stable supplier relationships. During fiscal 2005, the domestic segment’s five largest suppliers accounted for approximately 48 percent of merchandise purchased. The major suppliers included Sony, Hewlett Packard, Panasonic, Samsung and Toshiba. The international segment’s five largest suppliers accounted for approximately 38 percent of its merchandise purchased and included Motorola, Rogers Wireless, Panasonic, Acer America Corporation and Hewlett-Packard.

The loss or disruption in supply from any one of these major suppliers could have a material adverse effect on our revenue and earnings. We have no indication that any of our suppliers will discontinue selling us merchandise. We have not experienced significant difficulty in maintaining satisfactory sources of supply, and we generally expect that adequate sources of supply will continue to exist for the types of merchandise sold in our stores.

Circuit City offers an increasing amount of own-branded merchandise to complement its branded strategy. These unique brands, including Nexxtech, Centrios, Wasaki, Sector 7, esa, Liquid Video, Verge and Anika, supplement one of the best selections of name-brand products in the consumer electronics industry and provide an even broader selection to customers. Through Circuit City Global Sourcing, Ltd., a wholly owned subsidiary, the company has developed internal sourcing capabilities including sourcing offices in China, Hong Kong and Taiwan. This effort has resulted in the introduction of more than 3,000 new products, which are sold through the company’s stores, Web site and via the telephone.

The domestic segment has made improvements to its supply chain, including

During fiscal 2006, the company will focus on improving in-stock positions, reducing levels of net-owned inventory, increasing inventory turnover, decreasing markdowns and enhancing product offering. During fiscal 2006, the company also will work to optimize the product assortment and to generate a greater impact on traffic, profit and brand image from advertising and promotions.

Distribution

As of February 28, 2005, the domestic segment operated

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Most products are shipped from manufacturers directly to the distribution centers. Circuit City believes that the use of distribution centers enables it to efficiently distribute a broad selection of merchandise to its stores, reduce inventory levels at individual stores, benefit from volume purchasing and maintain inventory control. Some entertainment software is received directly from the manufacturer by the stores in order to reduce costs and ensure that new release titles are promptly available to customers.

The international segment’s stores are replenished primarily through one distribution center in Barrie, Ontario, Canada.

Domestic Store Revitalization

During fiscal 2001, Circuit City introduced a new Superstore format that features increased selling square footage, a brighter, more contemporary look and an open, easily navigable floor plan conducive to browsing. The format allows the company to put all products, except those that are too large for customers to carry themselves, on the sales floor. The company also has improved product adjacencies so that customers can conveniently shop for products and accessories related to their core product purchase. Shopping carts, baskets and centralized cash register checkouts add to the convenience of the increased number of “take-with” products in the stores.

During fiscal 2005, continuing the effort to update the store base to this new format, the company opened 31 incremental Superstores, relocated 28 Superstores and fully remodeled one Superstore. The following table summarizes the progress of the domestic store revitalization program over the last five fiscal years.

From the beginning of fiscal 2001 through February 28, 2005, a total of 189 Superstores, or 31 percent of the company’s 612 domestic Superstores, had been newly constructed under the new format, relocated or fully remodeled. During fiscal 2006, the company expects to open 30 to 40 domestic stores, of which it expects approximately half will be relocations.

Information Systems

The domestic segment’s in-store point-of-sale (POS) system maintains an online record of all transactions and allows management to track performance by region, store and store Associate. 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 in-store POS system is seamlessly integrated with the company’s e-commerce Web site. This integration provides the capability for in-store pickup of merchandise ordered from the Internet and allows for in-store ordering of merchandise for shipment directly to the customer’s home.

For our international segment, each of the company-operated stores has one or more computers that serve as POS terminals and are linked to the operational headquarters. This information network provides detailed sales and margin information on a daily basis, updates the customer database and acts as a monitor of individual store performance. The POS systems also are linked directly to a system used to automatically replenish a store’s stock as inventory is sold.

The company’s information systems strategy is to use solutions available in the marketplace instead of developing software in-house, allowing Circuit City to utilize its resources to enhance profitability and to create a competitive advantage. As part of an effort to eliminate complex, custom-developed information systems, the domestic segment plans to roll out a new POS system during fiscal 2006. The company expects the in-store system to be coupled with new data warehousing capabilities that will improve internal processes, streamline applications and allow more timely analysis of data. In fiscal 2006, the domestic segment also expects to invest in systems that enhance the analysis of the effectiveness of its advertising.

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Marketing

During the third quarter of fiscal 2005, Circuit City’s domestic segment introduced a marketing campaign designed to have one consistent message that would resonate with consumers. The same message can be seen or heard in print, on television, through direct marketing, on the Web, on the radio and in stores. The brand image, based on the tagline “Just what I needed,” embodies what Circuit City offers consumers: a complete solution with the right products and services, the ability to shop the way they want to shop, unbeatable prices and knowledgeable product specialists. The domestic segment concurrently introduced a marketing campaign specifically directed to the Hispanic community with the same focused message. In order to optimize the effectiveness of its marketing efforts, the domestic segment aligns its level of marketing spending and the mix of advertising vehicles used with the size and type of market, competition and cost factors.

Also during fiscal 2005, the domestic segment introduced a rewards credit card in partnership with Chase Card Services. Cardholders have the power to choose rewards points or promotional financing for qualifying purchases at Circuit City. The points can be redeemed for future purchases, enabling Circuit City to reward its loyal customers while encouraging repeat traffic to its stores.

The international segment is among the largest retail advertisers in Canada. The company advertises through multiple channels including newspaper, television, an annual catalog, direct mailings and radio.

Competition

The consumer electronics retail industry is highly competitive. Competitors include other consumer electronics retailers, discount retailers, warehouse clubs, home office retailers, Internet-based retailers and direct-to-consumer alternatives. Discount retailers continue to increase consumer electronics offerings, particularly on entry-level and less complex products.

Circuit City’s domestic segment differentiates itself from competitors by offering outstanding customer service; offering competitive prices; providing complete product and service assortments; and providing consumers the option of multi-channel shopping.

The international segment differentiates itself from other consumer electronics retailers in Canada through its range of products and its service orientation. InterTAN has established a market position in important growth categories, including wireless and other digital products, as well as in unique electronic gadgets.

Intellectual Property

The company’s principal trademarks and service marks, which are “Circuit City,” “Circuit City Direct,” “Circuit City Express,” “InterTAN” and “Just what I needed,” either have been registered, or have trademark applications pending, with the United States Patent and Trademark Office and with the trademark registries of various foreign jurisdictions. The company also owns various patents and trademarks related to consumer electronic goods designed and manufactured by third parties for Circuit City. The company’s rights in these trademarks and services continue for as long as they are used. The Company believes that the “Circuit City” name and the circle logo design have significant value and are important to its business.

The company’s InterTAN subsidiary currently licenses marks from RadioShack Corporation to operate retail consumer electronics outlets under the RadioShack^® name in Canada. That licensing agreement is the subject of litigation. Additional discussion of the litigation is included in Item 3, Legal Proceedings, of this Annual Report on Form 10-K. The company has trademark applications pending in both the United States and Canada for “THE SOURCE BY CIRCUIT CITY.” All stores currently operating under license from RadioShack Corporation will be re-branded on or before June 30, 2005. The international segment also operates stores under the registered trademarks Rogers Plus and Battery Plus.

Seasonality

Like many retailers, Circuit City’s revenues are typically greatest during the fourth fiscal quarter because it includes the majority of the holiday selling season. A corresponding pre-season inventory build-up during the third fiscal quarter is typically associated with this higher sales period.

Working Capital

The company funds capital expenditures and working capital needs through available cash, borrowing capacity under its $500 million credit facility, landlord reimbursements and sale-leaseback transactions. Additional discussion of Circuit City’s Liquidity and Capital Resources is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.

Capital Structure

From February 7, 1997, to October 1, 2002, the common stock of Circuit City Stores, Inc. consisted of two common stock series that were intended to reflect the performance of the company’s two businesses during that period. The Circuit City Group common stock was intended to reflect the performance of the Circuit City consumer electronics stores and related operations, as well as the shares of CarMax Group common stock reserved for the Circuit City Group or for issuance to holders

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of Circuit City Group common stock. The CarMax Group common stock was intended to reflect the performance of the CarMax auto superstores and related operations.

Effective October 1, 2002, the CarMax auto superstore business was separated from the Circuit City consumer electronics business through a tax-free transaction in which CarMax, Inc., formerly a wholly owned subsidiary of Circuit City Stores, Inc., became an independent, separately traded public company. Following the separation, the Circuit City Group common stock was renamed Circuit City common stock. CarMax results are presented as results from discontinued operations on the consolidated statements of operations. The company recorded no gain or loss as a result of the separation. Additional discussion of the separation is included in Note 17(B), Discontinued Operations, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Discontinued Divx Operation

Through Digital Video Express, 75 percent of which was owned by the company, Circuit City developed a new digital video system for watching movies at home. Divx was primarily engaged in the business of licensing this technology and replicating and distributing specially encrypted DVDs at wholesale. Circuit City was allocated 100 percent of Divx’s losses from Divx’s inception. In fiscal 2000, Digital Video Express announced that it would cease marketing the Divx home video system and discontinue operations. Divx results are presented as results from discontinued operations on the consolidated statements of operations. Additional discussion of the discontinued Divx operation is included in Note 17(C), Discontinued Operations, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Appliance Exit

In the second quarter of fiscal 2001, the company began to exit the major appliance category. This process was completed in November 2000. To exit the appliance business, the company closed eight distribution centers and eight service centers. The company subleases the majority of these leased properties.

Available Information

Circuit City makes available, free of charge on its Web site, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports as soon as practicable after electronically filing the material with or furnishing the material to the Securities and Exchange Commission. These documents may be viewed by visiting the company’s investor information Web site at http://investor.circuitcity.com and selecting the “SEC Filings” link under the “Investor Info” header.

The company also makes available, free of charge on its Web site, the charters of the Audit Committee, Nominating and Governance Committee and Compensation and Personnel Committee as well as the code of conduct and the board practices and policies adopted by the board of directors. These documents may be viewed by visiting the investor information Web site at http://investor.circuitcity.com and selecting the “Corporate Governance” link under the “Company Info” header.

References to the company’s Web site do not constitute incorporation by reference of the information contained on the Web site, and the information contained on the Web site is not part of this document.

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Item 2. Properties.

The following table summarizes the geographic location of our retail stores at February 28, 2005.

The following table summarizes the lease expiration dates of our domestic segment at February 28, 2005.

Of the domestic segment’s stores open at February 28, 2005, the company owns six stores and leases the remaining 611 stores. All nine of the domestic segment’s distribution centers are leased. The company owns one of its five domestic segment’s service centers. For its corporate headquarters, the company owns most of the land, but leases two buildings. The company leases space for all warehouse, service and office facilities except as otherwise noted.

Circuit City’s international segment owns a 402,000 square-foot building containing office and warehouse space and a retail location in Barrie, Ontario, Canada, where the headquarters of the international segment are located. With the exception

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of a retail store located on this property, the international segment’s operations are conducted in leased facilities. The dealer outlets included in the preceding table are independent retail businesses that operate under their own trade names but are permitted, under dealer agreements, to purchase any of the products sold by InterTAN. In addition to the 966 stores and dealer outlets, the international segment conducts business through 64 wholesale relationships.

For information regarding the company’s lease obligations, see Note 12, Lease Commitments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statement and Supplementary Data, of this Annual Report on Form 10-K.

Item 3. Legal Proceedings.

On March 31, 2004, Circuit City announced a public tender offer to purchase the stock of InterTAN. Circuit City completed the acquisition and InterTAN became a wholly owned subsidiary of Circuit City on May 19, 2004. Among other things, InterTAN operates retail consumer electronics outlets under the RadioShack^® name in Canada under a licensing agreement with a subsidiary of RadioShack Corporation. InterTAN also operates under two other agreements with RadioShack and its subsidiaries (“RadioShack”): a merchandising agreement and an advertising agreement.

After the March 31, 2004 announcement, RadioShack asserted early termination of all three agreements under a variety of theories and on a variety of proposed termination dates. RadioShack asserts that InterTAN failed to pay an annual fee in material breach of the advertising agreement and, alternatively, that a “without cause” termination of the advertising agreement triggers termination of the other agreements.

On April 5, 2004, RadioShack filed suit against InterTAN in Tarrant County, Texas, and amended that suit on April 27, 2004 (the “RadioShack litigation”). InterTAN disputes the various termination scenarios alleged by RadioShack and is vigorously defending against those claims. InterTAN also has filed claims for disparagement and unfair business practices against RadioShack. The parties argued a RadioShack motion for partial summary judgment on February 3, 2005. On March 24, 2005 the court issued an order on that motion stating that the three agreements were terminated no later than December 31, 2004. If that ruling stands, there would be a six-month wind down period under the license agreement until June 30, 2005.

Circuit City continues to believe that RadioShack is not entitled to early termination of the agreements and that InterTAN has substantial defenses to the RadioShack claims. Circuit City and InterTAN intend to vigorously defend the claims and exercise InterTAN’s rights under the agreements, as well as any appeal rights.

Because of the ongoing legal conflict with RadioShack, Circuit City has been taking steps to position its Canadian operations for continued success, regardless of the outcome of this litigation. Circuit City believes that this litigation will not have a material adverse effect on the company’s financial condition 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, 2005.

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. The executive officers are generally elected annually and serve for one year or until their successors are elected. The next general election of officers is expected to occur in June 2005. The following table identifies the executive officers of the company at April 30, 2005.

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Mr. McCollough is chairman of the board and chief executive officer and a member of the board’s executive committee. He 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, president and chief operating officer in 1997, chief executive officer in June 2000 and chairman of the board in June 2002.

Mr. Schoonover joined the company in October 2004 as executive vice president and chief merchandising officer. He was elected president in February 2005. Before joining the company, he was executive vice president – customer segments at Best Buy Co., Inc., a retailer of consumer electronics, home-office products, entertainment software, appliances and related services, from April 2004 until September 2004. He joined Best Buy in 1995 and previously served as executive vice president – new business development from February 2002 until April 2004; executive vice president – digital technology solutions from February 2001 until February 2002; and senior vice president – merchandising for five years. Before joining Best Buy, Mr. Schoonover was an executive vice president at TOPS Appliance City, a retailer of home appliances and consumer electronics, and held senior marketing positions with Sony Corporation of America, a global entertainment company.

Mr. Foss joined the company in 2003 as senior vice president and chief financial officer. He was promoted to executive vice president in 2005. Before joining the company, he was executive vice president of corporate/business development for TeleTech Holdings Inc., a global provider of customer management solutions for large companies, from 2001 to 2003; president of TeleTech Companies Group, an operating division of TeleTech Holdings, Inc., from 2000 to 2001; and executive vice president and chief financial officer of TeleTech Holdings and president of TeleTech Companies Group from 1999 to 2000. Mr. Foss was employed by Eastman Kodak Corporation, a company engaged in developing, manufacturing and marketing traditional and digital imaging products, services and solutions, from 1997 to 1999 in various senior positions, including chief executive officer of Kodak’s Picturevision Inc. subsidiary.

Mr. Levy joined InterTAN in 1998 as president and chief operating officer. He was named president and chief executive officer of InterTAN in 1999 and became a Circuit City officer in 2004 upon Circuit City’s acquisition of InterTAN. Before joining InterTAN, Mr. Levy was employed for more than 20 years with Tandy Corporation, then the parent of RadioShack Corporation, serving in various positions including senior vice president in the RadioShack division.

Mr. Clark joined the company in 1983. He was promoted to store manager in 1987, district manager in 1992 and regional vice president in 1993. He was named assistant vice president in 1995, vice president and Central Division president in 1997, Eastern Division president in 2002, senior vice president in 2003, and general merchandise manager for Technology in September 2004. He was named president, Circuit City - Retail Stores in March 2005.

Mr. Cuthbertson joined the company in March 2005 as senior vice president, supply chain and inventory management. Before joining the company, he was president and chief executive officer of Southport Consulting, Inc., a management consulting company. Prior to his role at Southport Consulting, he was employed at Best Buy Co., Inc. from 1999 to 2004 and served in numerous roles including enterprise vice president, with concurrent roles of vice president Best Buy International and vice president global sourcing, and executive vice president, merchandising, marketing and supply chain at Best Buy Canada Ltd. Mr. Cuthbertson also served in various positions at Sears Canada Inc., a division of Sears, Roebuck & Co., a retailer of home merchandise, apparel and automotive products and related services, from 1979 to 1998.

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Mr. Denney joined the company in 1979. After serving as store manager in numerous locations, he moved into a regional merchandising role. Mr. Denney served as divisional merchandising manager for the southern division from 1986 to 1994. He was named corporate director of advertising and marketing in 1994, assistant vice president in 1995, vice president - general merchandise manager in 2002 and senior vice president in 2003. Mr. Denney is the general merchandise manager for Entertainment, Mobile and Portable Audio.

Ms. Dias joined the company in 2000 as senior vice president – marketing. She was named president of Circuit City Direct in 2003. Before joining the company, she was chief marketing officer at Stick Networks, Inc., a wireless software company, during 2000; vice president – marketing and development for the Frito-Lay Company, an operating division of PepsiCo, Inc. that is engaged in the snack food industry, from 1999 to 2000; and vice president of corporate development at Pennzoil Quaker State Company, a manufacturer of automotive, commercial, industrial, and marine lubricants, from 1996 to 1999. Prior to 1996, she held various brand management positions with The Procter and Gamble Company, a global consumer products company.

Mr. Dunn joined the company in 1984 as assistant controller of inventory audit and control. He was named treasurer in 1990, was promoted to vice president in 1992 and added the title of controller in 1996. In 1999, he was elected senior vice president. Mr. Dunn was employed by Arthur Young & Co., an accounting firm and a predecessor of Ernst & Young LLP, from 1980 to 1984.

Mr. Jonas joined the company in 1998 as director of associate relations. He was promoted to assistant vice president of corporate human resources services in 1998 and was elected senior vice president in July 2004. Prior to joining the company, he was employed by Toys “R” Us, a worldwide retailer of toys, baby products, and children’s apparel, from 1985 until 1998, including director of human resources for the Babies “R” Us division from 1996 to 1998.

Mr. Jones joined the company in 1999 as vice president, chief information officer, First North American National Bank. He was promoted to senior vice president, chief information officer in February 2004. Prior to joining the company, Mr. Jones was employed by Markel Corporation, an international property and casualty insurance holding company, for 10 years, most recently as president and chief operating officer of an operating subsidiary.

Mr. Mierenfeld joined the company in 1993 as vice president - distribution. He was elected senior vice president in 1999. He was named senior vice president - store development, procurement, distribution and service in 2003. Prior to joining the company, he was employed by The Gap, Inc., an international specialty retailer of clothing, accessories and personal care products, for 13 years in various human resources and distribution positions, including vice president of distribution. He was also employed by Sears, Roebuck and Co. for ten years in various management positions.

Mr. Moore joined the company in 1990 as a regional manager for the roadshop division. He was named a regional vice president in 1995; director of corporate operations in 1997; assistant vice president - general manager, builder appliance sales division in 1998; assistant vice president - senior national buyer in 1999; assistant vice president - divisional merchandising manager - imaging in 2000; assistant vice president - director of merchandising operations in 2002; Western Division president and senior vice president in 2003. In September 2004, Mr. Moore was named senior vice president, merchandising and in March 2005 he was named chief merchandising officer. Before joining the company, Mr. Moore was employed as a brand manager for AH Robins Company, Inc., a pharmaceuticals manufacturer, in its Dimetapp business from 1980 to 1985 and in various operational and marketing capacities for AMF Bowling, Inc., a global manufacturer and marketer of bowling products and operator of bowling centers, and Carnation Company.

Mr. Sieger joined the company in 2003 as vice president of warranty administration, with additional responsibility for the Service division including field and depot repair, installations, PC services and call centers. In March 2005, he was named senior vice president, general merchandise manager. Prior to joining the company, he spent 13 years at General Electric Company, a diversified technology, media and financial services company, working in roles in finance, marketing, e-commerce, sales and business development.

Mr. Speranza joined the company in April 2004 as senior vice president and chief marketing officer. Before joining the company, he was senior vice president - marketing and advertising, international at Toys “R” Us, Inc. from 1999 to 2003 and senior vice president – marketing and advertising at Toys “R” Us, Inc. from 1983 to 1999.

Mr. Wick joined the company in December 2004 as senior vice president, general merchandise manager for Audio and Video. Before joining the company, he served as executive vice president of Petters Group Worldwide, an independent operating company that specializes in brand marketing. Prior to joining Petters Group Worldwide in 2004, he was vice president of retail strategies at Best Buy. He joined Best Buy in 1996 and served as merchandising manager from 1996 to 2001 and as vice president of merchandise from 2001 to 2002. Before joining Best Buy, he worked for Fretter/Silo, formerly a large retailer of home entertainment products, consumer electronics and appliances, for ten years.

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PART II

Item 5. Market for the Company’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

As of March 31, 2005, there were 6,612 shareholders of record of common stock. The common stock of Circuit City Stores, Inc. is traded on the New York Stock Exchange under the symbol CC.

Market Price of Common Stock

The following table provides information about common stock repurchases by or on behalf of the company during the quarter ended February 28, 2005:

If the remaining borrowing availability under the company’s $500 million, four-year revolving credit facility falls below $100 million, cash dividends and stock repurchases are limited to an aggregate of $75 million in any fiscal year.

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Item 6. Selected Financial Data.

Results from continuing operations shown above exclude Digital Video Express, CarMax and the bankcard finance operation. All periods reflect the adoption of SFAS No. 123, as amended by SFAS No. 148. Consolidated results include results from InterTAN from the acquisition date, May 12, 2004. Results for fiscal 2005 include an after tax charge of $4.2 million for the cumulative impact of a revision to our lease accounting practices during the fourth quarter of fiscal 2005. Consolidated balance sheets reflect reclassifications as a result of revisions to our lease accounting practices. Consolidated results also reflect the reclassification of revenues, costs and expenses relating primarily to mobile audio installations for the domestic segment.

See consolidated financial statements and accompanying notes, included in Item 8, Financial Statement and Supplementary Data, of this Annual Report on Form 10-K.

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

Management’s Discussion and Analysis (MD&A) is designed to provide the reader of financial statements with a narrative discussion of our results of operations; financial position, liquidity and capital resources; critical accounting policies and significant estimates; and the impact of recently issued accounting standards. Our MD&A is presented in seven sections:

This discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in this annual report. All per share amounts in this discussion are presented on a fully diluted basis.

Executive Summary

Fiscal 2005 Performance

We were pleased by the improvement in fiscal 2005 results compared with fiscal 2004.

Fiscal 2005 Significant Events

A number of our actions in fiscal 2005 demonstrated our continued commitment to maximizing shareholder value.

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We entered into a Consumer Credit Card Program Agreement under which Chase Card Services is offering private-label and co-branded credit cards to new and existing customers. We are compensated under the program agreement primarily based on the number of new accounts opened less promotional financing costs that exceed a negotiated base amount. The earnings contribution from the Chase credit card program is included in net sales and operating revenues on the consolidated statement of operations.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. Preparation of financial statements requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. We use our historical experience and other relevant factors when developing our estimates and assumptions. We continually evaluate these estimates and assumptions. Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K includes a discussion of our significant accounting policies. The following accounting policies are those we consider critical to an understanding of the consolidated financial statements because their application places the most significant demands on our judgment. Our financial results might have been different if other assumptions had been used or other conditions had prevailed.

Accounting for Cash Consideration Received from Vendors

We receive cash consideration from vendors through a variety of programs and arrangements, including cooperative advertising and vendor allowances. Given the promotional nature of our business, these vendor allowances are generally intended to offset our costs of promoting, advertising and selling the vendors’ products in our stores. Inherent in the accounting for cash consideration received from vendors are significant management judgments and estimates, including the percentage of vendor allowances to be amortized to cost of sales, buying and warehousing and the percentage of vendor allowances that relate to inventory still on hand. We review these judgments and estimates on a monthly basis and make adjustments as appropriate.

We recognize the majority of vendor allowances as a reduction to cost of sales, buying and warehousing. Cash consideration received as part of cooperative advertising programs that represents a reimbursement of specific, incremental, identifiable direct costs incurred by us to advertise the vendors’ products is reported as a reduction of advertising expense in the period in which the advertising occurs.

Calculation of the Liability for Lease Termination Costs

When leased properties are no longer used for operating purposes, we recognize a liability for remaining costs related to the properties, reduced by any contractual or estimated sublease income. Inherent in the calculation of accrued lease termination costs are significant management judgments and estimates, including estimates of future sublease revenues, vacancy periods, tenant improvement allowances, broker fees, taxes, insurance and maintenance costs, and the credit-adjusted risk-free interest rate used to discount the expected net cash payments. We review these judgments and estimates on a quarterly basis,

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and accrued lease termination costs is adjusted as appropriate. Fluctuations in the economy and in marketplace demand for commercial properties can result in material changes in the liability for lease termination costs.

Goodwill and Other Identified Intangible Assets

We evaluate goodwill for impairment on an annual basis, or more frequently if an event or circumstance indicates that the asset may be impaired. Goodwill, other intangible assets, and tangible assets and liabilities are divided among reporting units. The fair value of the reporting units is compared to the carrying value to determine if there is an indication that potential impairment may exist.

The performance of the goodwill impairment test is subject to significant judgment in determining the fair value of reporting units, the estimation of future cash flows, the estimation of discount rates, and other assumptions. Changes in these estimates and assumptions could have a significant impact on the fair value and/or goodwill impairment of each reporting unit.

Accounting for Stock-Based Compensation Expense

We account for stock-based compensation using a fair value-based method. The Black-Scholes option valuation model is used to determine the fair value of stock options at the date of grant and we recognize expense over the period in which the options vest. This valuation model was developed for use in estimating the fair value of traded options that do not have vesting restrictions and are fully transferable. Option valuation models require us to make highly subjective assumptions, including the expected future volatility of the stock price, expected dividend yield, risk-free interest rate and expected life of the option. Because the stock options granted have characteristics that are significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the fair value estimate, the existing option valuation models, including the Black-Scholes model, do not necessarily provide a reliable single measure of the fair value of our employee stock options.

We have issued performance-based shares, which are considered restricted stock awards. The vesting of these shares is based upon the company achieving operating profit margin targets for fiscal 2006. Stock-based compensation expense related to the performance-based shares should be recognized based on the likelihood of management achieving the operating profit margin targets. The determination of our ability to achieve these targets requires management’s judgment. During the fourth quarter of fiscal 2005, we determined that it is unlikely the performance targets related to the performance-based shares will be met. Accordingly, we reversed the compensation expense recorded to date.

Accounting for Pension Plans

Net pension expense recognized in our consolidated financial statements for our defined benefit pension plan and unfunded non-qualified benefit restoration plan is determined on an actuarial basis. The effects of both the performance of pension plan assets and changes in pension liability discount rates on the computation of net pension expense are amortized over future periods.

A significant element in determining the net pension expense is the expected return on plan assets. To develop the expected long-term rate of return assumption on our pension plan assets, we use historical long-term return experience, the expected investment mix of the plan’s assets and estimates of future long-term investment returns. The rate of return assumption is reviewed annually and adjusted as appropriate. For fiscal 2005 and fiscal 2004, our expected rate of return on plan assets was 8.25 percent. Net pension expense for our pension plans was $19.8 million in fiscal 2005, $18.4 million in fiscal 2004 and $15.7 million in fiscal 2003. These expenses are included in selling, general and administrative expenses on the consolidated statements of operations.

At the end of each fiscal year, we determine the weighted average discount rate used to calculate the present value of plan liabilities. The discount rate is an estimate of the interest rate at which the pension liabilities could be effectively settled at the end of the year. When estimating the discount rate, we look to rates of return on high-quality, fixed-income investments that receive one of the two highest ratings given by a recognized rating agency. The weighted average discount rate was 5.75 percent at February 28, 2005, and 6.00 percent at February 29, 2004. The decline in our weighted average discount rate was due to the decline in market interest rates.

The rate of increase in compensation levels is another assumption used for determining net pension expense. We determine this rate based upon annual reviews of plan participants’ historical levels of salary increases and expectations regarding potential future salary increases.

In October 2004, the board of directors approved an amendment to freeze both the pension and benefit restoration plans, effective February 28, 2005. As a result of the pension plan freeze, all eligible employees retain any benefits accumulated to the effective date, but are no longer eligible to increase their benefit. Eligible employees will continue to earn vesting credit toward the pension plan’s vesting requirements. Employees who would be eligible to retire under both plans’ early or normal retirement provisions on or before February 28, 2008, are considered grandfathered employees and are not subject to the plan changes. The impact of the plan changes is a curtailment charge of $1.1 million in the fiscal year ended February 28, 2005.

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Income Taxes

Many deductions for tax return purposes are taken when the expenses are actually paid, rather than when the expenses are recorded for book purposes. We accrue for the tax benefit expected to be received in future years if, in our judgment, it is more likely than not that we will receive such benefits. The amount and timing of certain current deductions require interpretation of tax laws. We estimate and accrue income tax contingencies for differences in interpretation that may exist with tax authorities. We also periodically evaluate income tax contingency accruals and the likelihood the benefits of a deferred tax asset will be realized. We must consider a variety of factors, including the nature and amount of the tax income and expense items, the current tax statutes, the current status of audits performed by tax authorities and the projected future earnings.

Results of Operations

Lease Accounting Revision, Reclassifications and Change in Calculation of Comparable Store Sales

During the fourth quarter of fiscal 2005, we revised our accounting practices associated with leases, primarily related to landlord reimbursements for construction by us on leased property. To the extent that landlord reimbursements exceed structural costs of a new store, the excess of funding over cost is classified as a long-term liability. Shortfalls in funding result in capital expenditures for structural costs in excess of reimbursements from the landlord and the excess is classified as a long-term asset, unless the shortfall is substantial. In cases of substantial under-funding, the reimbursement is not used to offset capital expenditures; instead the entire amount is classified as a long-term liability.

Results for fiscal 2005 include an after tax charge of $4.2 million for the cumulative impact of a revision to our lease accounting practices. This adjustment does not impact historical or future net cash flows or the timing of any payments under the related leases. The accounting revision also affected the historical balance sheets. For 2005, the impact to property and equipment was an increase of $113.0 million, the impact to other assets was an increase of $15.1 million, the impact to deferred income taxes was an increase of $2.4 million, the impact to accrued straight-line rent and deferred rent expense was an increase of $134.6 million and the impact to retained earnings was a decrease of $4.2 million. For 2004, the impact to property and equipment was an increase of $91.2 million, the impact to other assets was an increase of $17.1 million and the impact to accrued straight-line rent and deferred rent expense was an increase of $108.3 million.

During the fourth quarter of fiscal 2005, we reclassified revenues, costs and expenses relating primarily to mobile audio installations for the domestic segment. These items, which were previously presented on a net basis as an offset to selling, general and administrative expenses, are now presented on a gross basis. The impact on the consolidated statement of operations for fiscal 2004 is an increase to revenues of $111.6 million, or 1 percent, offset by increases to cost of sales of $54.9 million, or 1 percent, and selling, general and administrative expenses of $56.7 million, or 3 percent. The impact on the consolidated statement of operations for fiscal 2003 is an increase to revenues of $101.3 million, or 1 percent, offset by increases to cost of sales of $44.8 million, or 1 percent, and selling, general and administrative expenses of $56.5 million, or 2 percent.

During the fourth quarter of fiscal 2005, we updated our calculation of comparable store sales to more accurately reflect business trends, including the growing importance of service-related revenues. We expanded the revenues included in comparable store sales to include extended warranties, installations and other non-merchandise revenues. Previously, revenues included in the comparable store sales calculation were limited to merchandise sales. Comparable store sales results have been presented to reflect the new calculation methodology.

Summary of Segment Performance

Where relevant, we have included separate discussions of our domestic and international segments. Our domestic segment is primarily engaged in the business of selling brand-name consumer electronics, personal computers, entertainment software and services in our Superstores and mall-based stores in the United States and via the Web at www.circuitcity.com. Our international segment is primarily engaged in the business of selling private-label and brand-name consumer electronics products in Canada and principally includes the operations of InterTAN, Inc., which we acquired in May 2004. Consolidated results include results from InterTAN from the acquisition date. Prior to the second quarter of fiscal 2005, we had a third reportable segment, our finance operation. The table below provides a summary of performance by segment.

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SEGMENT PERFORMANCE SUMMARY

In fiscal 2004 and fiscal 2003 we had two reportable segments: our domestic retail operation and our finance operation. Finance income is presented as a separate line on the consolidated statements of operations, therefore no segment performance table is presented for these years.

Net Sales and Operating Revenues

Consolidated

For the fiscal year ended February 28, 2005, our total sales increased 6.2 percent to $10.47 billion, and comparable store sales increased 0.7 percent. In fiscal 2004, total sales decreased 2.0 percent to $9.86 billion from $10.05 billion in fiscal 2003, and comparable store sales decreased 1.2 percent.

PERCENT SALES CHANGE FROM PRIOR YEAR

A store’s sales are included in comparable store sales after the store has been open for a full 12 months. In addition, comparable store sales include all Web-originated sales and sales from relocated stores. Sales from closed stores are included in comparable store sales until the month in which the stores are closed. Comparable store sales for fiscal 2005 and total sales for fiscal 2004 and 2003 reflect domestic sales only.

The fiscal 2005 total sales increase reflects sales from the international segment, the addition of 31 Superstores and the increase in comparable store sales, partially offset by the closure of 19 Superstores in late fiscal 2004. In 2005 we believe we benefited from improved in-store execution in our domestic stores through most of the year, resulting in improvements in average ticket and extended warranty penetration rates for key merchandise classes. In February 2005, we closed 19 underperforming Superstores, which had sales of $170.5 million in fiscal 2005.

The fiscal 2004 total sales decrease reflects the decline in comparable store merchandise sales partly offset by the addition of eight Superstores. We believe our store-level execution, which was not consistent with our expectations, negatively impacted sales. This weak execution was reflected in an overall reduction in customer satisfaction levels. Higher-than-normal turnover in store-level management also contributed to the reduction in satisfaction levels. In February 2004, we closed 19 underperforming Superstores that had fiscal 2004 revenues of $149.9 million. We also closed one Superstore in advance of the planned opening of a replacement Superstore early in fiscal 2005.

Domestic Segment

The domestic segment’s fiscal 2005 net sales and operating revenues were $10.02 billion, an increase of 1.6 percent over fiscal 2004 sales of $9.86 billion. Comparable store sales increased 0.7 percent. The sales increase reflects the addition of 31 Superstores and the comparable store sales gain, partially offset by the closure of 19 Superstores in late fiscal 2004.

PERCENT OF DOMESTIC MERCHANDISE SALES BY CATEGORY

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For fiscal 2005, we generated strong comparable store sales growth in product categories with new technologies or improved functionality for the consumer: flat panel displays, including plasma and LCD technologies; large projection televisions; portable digital audio and accessories; digital camera and accessories; and digital satellite radio. Web-originated sales grew strongly throughout 2005. We experienced sales declines in mature product areas such as tube televisions, DVD players, home audio and telecommunications as well as a decline in sales of games products due to hardware inventory shortages.

In fiscal 2005 we experienced significant declines in revenues from two categories that experienced business model changes: wireless communications products and services and digital satellite services. The business model change for wireless communications reflects our strategic decision to add a Verizon store-within-a-store to more than 570 of our Superstores during the third quarter. Under the new business model, Verizon sells the products from its store-within-a-store and incurs the costs of labor, in-store signage and inventory. We receive and record revenues for each new handset activation within our store. The shift of product sales to Verizon negatively impacted our comparable store sales. We expect the added value of products and services to our customers will help drive additional traffic to our stores and contribute to stronger profitability in this business than could be achieved if we continued to operate it ourselves. The business model change for digital satellite services reflects a reduction in hardware subsidies paid to us by the service provider, resulting in lower revenues, and a reduction in hardware costs.

For fiscal 2004, we generated strong comparable store sales growth in digital imaging products and accessories; LCD and plasma display devices; digital televisions, including slim-line technologies; notebook computers; and the traffic-driving movies and music software categories. Web-originated sales also grew strongly throughout fiscal 2004.

Extended Warranty Revenues. The percent of total domestic sales attributable to sales of extended warranties was 3.8 percent in fiscal 2005, 3.3 percent in fiscal 2004 and 3.6 percent in fiscal 2003.

The domestic segment sells extended warranty programs on behalf of unrelated third parties who are the primary obligors. Extended warranty sales carry higher-than-average gross profit margins.

The increase in extended warranty sales as a percentage of total sales in fiscal 2005 compared with fiscal 2004 reflects improved in-store execution resulting from increased attention and training. This improvement offset the effects of declining average retail prices and rapid technological developments, both of which encourage consumers to replace products rather than purchase warranties that would cover future repairs. We continue to focus on our performance in this area, but as we approach historical levels, we expect that any increase in the percentage of total sales will be less than that achieved in fiscal 2005.

The decline in extended warranty sales as a percentage of total sales from fiscal 2003 to fiscal 2004 primarily reflects the declines in average retails and rapid technological developments and weak in-store execution, resulting, we believe, from a substantial increase in part-time sales Associates prior to our peak selling season.

Net Credit Revenues. In May 2004, we sold our private-label finance operation to Chase Card Services, formerly Bank One. We entered into an arrangement under which Chase offers private-label and co-branded credit cards to both new and existing customers. Revenues from new account activations are offset by the cost associated with promotional financing over a predetermined base. The earnings contribution from the program is included in net sales and operating revenues on the consolidated statement of operations. Net credit revenues for fiscal 2005 were $7.8 million.

From inception of the program in May 2004 through the end of the fiscal year, both the number of new account activations and the cost associated with promotional financing under the program exceeded our expectations. In the third quarter, we made a decision to offer financing promotions that were competitive in the marketplace, both in number of offers and durations of offers, which contributed to the higher-than-expected costs. As a result of the deviation from our original plan, pretax earnings generated were less than the $30 million that we had expected to generate annually when we entered into the sale arrangement.

DOMESTIC STORE MIX

DOMESTIC SUPERSTORE SQUARE FOOTAGE SUMMARY

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International Segment

The international segment net sales and operating revenues were $454.9 million in fiscal 2005. In addition to the 966 retail stores and dealer outlets, the international segment conducts business through 64 wholesale relationships.

INTERNATIONAL STORE MIX

Gross Profit Margin

Consolidated

The gross profit margin was 24.5 percent in fiscal 2005, 23.2 percent in fiscal 2004, and 23.9 percent in fiscal 2003. The higher gross profit margin in fiscal 2005 primarily reflects the inclusion of the international segment, increased extended warranty sales and increased efficiency in our product service and distribution operations, partially offset by declines in merchandise margin due to high levels of promotional activities throughout much of the year. The inclusion of the international segment contributed 71 basis points to the improvement.

The lower gross profit margin in fiscal 2004, compared with fiscal 2003, primarily reflects reductions in extended warranty sales during the first nine months and, in the fourth quarter, heavy promotions, particularly in December, on desktop personal computers; aggressive industry pricing on big-screen and advanced televisions; and some shifts in the merchandise mix to lower margin products. Reduced service and distribution costs partly offset these factors.

Domestic Segment

The domestic segment’s gross profit margin increased 65 basis points in fiscal 2005 from fiscal 2004. The change in the domestic gross profit margin reflects an increase in extended warranty sales and increased efficiency in our product service and distribution operations, partially offset by declines in merchandise margin due to high levels of promotional activities throughout much of the year.

Prior to fiscal 2005, we did not have an international segment. Please refer to the discussion of consolidated results for factors contributing to prior years’ performance.

International Segment

The international segment’s gross profit margin in fiscal 2005 was 40.1 percent of international sales.

Finance Income

Finance income was $5.6 million in fiscal 2005, compared with $32.7 million in fiscal 2004 and $27.3 million in fiscal 2003. Finance income for fiscal 2005 includes a portion of the loss on the sale of the private-label finance operation to Chase Card Services and the income generated by the private-label finance operation from the beginning of the fiscal year through the sale date. The fiscal 2004 increase in finance income from fiscal 2003 resulted from the introduction of the co-branded feature to the private-label card, which allowed cardholders to make additional purchases outside of Circuit City. This feature led to increased purchase activity, little of which carried promotional interest rates. It also resulted in interchange income and cash advance fees, neither of which was earned before the co-branded feature was introduced.

Prior to November 2003, both our bankcard finance operation and our private-label finance operation were conducted through our wholly owned subsidiary, First North American National Bank, which was a limited-purpose credit card bank, and through consolidated special purpose subsidiaries and off-balance-sheet qualifying special purpose entities. As part of a focus on strengthening the financial performance of our core business, we sold our bankcard finance operation to FleetBoston Financial in November 2003 and sold our private-label finance operation to Chase Card Services in May 2004.

Results from the bankcard finance operation are presented as results from discontinued operations on the consolidated financial statements; therefore, its results are not included in the “Components of Finance Income” table. See “Net Earnings (Loss) from Discontinued Operations.”

Coincident with the sale of the private-label operation to Chase, we entered into an ongoing arrangement with Chase under which they offer private-label and co-branded credit cards to both new and existing customers. Results from that arrangement are included in net sales and operating revenues on the consolidated statement of operations.

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COMPONENTS OF FINANCE INCOME

Securitization income primarily is comprised of the gain on the sale of the credit card receivables, income from the retained interests in the securitized receivables and income related to servicing the securitized receivables, as well as the impact of increases or decreases in the fair value of the retained interests.

Selling, General and Administrative Expenses

Consolidated

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were 23.5 percent of sales in fiscal 2005, 23.1 percent of sales in fiscal 2004, and 23.7 percent of sales in fiscal 2003.

The increase in the selling, general and administrative expense ratio from fiscal 2004 to fiscal 2005 reflects the inclusion of the international segment, which increased the fiscal 2005 expense-to-sales ratio by 42 basis points. Domestic selling, general and administrative expenses were approximately flat to the prior year as a percent of sales as lower payroll and rent and occupancy expenses were offset by various increased costs. The fiscal 2005 expenses include costs of $47.4 million related to the closing of 19 Superstores and five regional offices during the year, an expense of $6.5 million for the cumulative impact of a multi-year lease accounting revision and a gain of $2.8 million related to the sale of one of our corporate office buildings. The fiscal 2005 expenses include costs associated with 28 relocations, as well as accelerated depreciation of assets related to planned future relocations, and costs associated with fully remodeling one Superstore.

The reduction in the selling, general and administrative expense ratio from fiscal 2003 to fiscal 2004 largely reflects lower store operating costs, resulting primarily from reductions in comparable store payroll, and a reduction in advertising expenses. Store-related payroll savings of approximately $130 million from comparable stores were driven primarily by the change, initiated in February 2003, in the store compensation structure. The fiscal 2004 expenses include costs of $38.4 million related to the closing of 19 Superstores during the year and a $5.9 million benefit resulting from a reduction in liabilities associated with our gift card program. The fiscal 2003 expenses included $10.0 million related to the change in our store compensation structure in February of that year. The fiscal 2004 expenses include costs associated with 18 relocations, as well as accelerated depreciation of assets related to planned future relocations, and costs associated with fully remodeling four Superstores and refixturing 222 Superstores. Remodel expenses incurred in fiscal 2004 include $21.7 million for refixturing.

Domestic Segment

The domestic segment’s expense-to-sales ratio decreased six basis points in fiscal 2005 from fiscal 2004. The slight decrease resulted from lower payroll and rent and occupancy expenses offset by increases in advertising and other costs. Relocation and remodel expenses totaled $41.1 million in fiscal 2005 compared with $54.4 million in fiscal 2004 and $47.9 million in fiscal 2003.

Prior to fiscal 2005, we did not have an international segment. Please refer to the discussion of consolidated results for factors contributing to prior years’ performance.

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International Segment

The international segment’s selling, general and administrative expenses for fiscal 2005 were 32.7 percent of international segment sales.

Stock-based Compensation Expense

Stock-based compensation expense was $19.4 million in fiscal 2005, compared with $38.7 million in fiscal 2004 and $53.3 million in fiscal 2003.

The decrease in stock-based compensation expense from fiscal 2004 to fiscal 2005 reflects lower weighted-average fair values of recent grants and the full vesting of grants during the year. The decrease also reflects a reversal of previously recognized compensation costs related to performance-based restricted stock grants. Under the terms of the restricted stock grant, vesting is contingent upon our achieving a targeted operating profit margin for fiscal 2006. During the fourth quarter, management determined that it is unlikely that the target will be met and, as a result, reversed the expense recorded to date.

The decrease in stock-based compensation expense from fiscal 2003 to fiscal 2004 reflects lower weighted-average fair values of recent grants and the full vesting of grants during the year.

Income Tax Provision

The consolidated effective income tax rate applicable to results from continuing operations in fiscal 2005 was 37.5 percent compared with 36.5 percent in fiscal 2004. The increase in the rate in fiscal 2005 reflects the inclusion of the international segment. In fiscal 2005, the effective income tax rate applicable to results from continuing operations for our domestic segment was 36.6 percent and 39.2 percent for our international segment.

The consolidated effective income tax rate applicable to results from continuing operations was 3.3 percent in fiscal 2003 compared with 36.5 percent in fiscal 2004. The low rate in fiscal 2003 is the result of state income taxes and nondeductible items.

Net Earnings (Loss) from Continuing Operations

Net earnings from continuing operations were $59.9 million, or 31 cents per share, for the fiscal year ended February 28, 2005. The net loss from continuing operations was $787,000, or 0 cents per share, for the fiscal year ended February 29, 2004, compared with $5.3 million, or 3 cents per share, for the fiscal year ended February, 28, 2003.

The improvement in net earnings from continuing operations in fiscal 2005 was driven by the inclusion of the international segment, increased domestic sales, improvements in domestic gross profit margin, and lower stock-based compensation expenses, partially offset by higher selling, general and administrative expenses and reduced finance income. The international segment’s results increased net earnings from continuing operations for fiscal year 2005 by $19.7 million, or 10 cents per share.

In fiscal 2004, the improvement in finance income and the reduction in selling, general and administrative expenses drove the slight improvement in performance from fiscal 2003.

Net Earnings (Loss) from Discontinued Operations

NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS