In electronics retailing, Best Buy Co. vs. Circuit City Stores Inc. is a tale of two companies with continuing disparities: Best Buy gains ground as Circuit City struggles to improve its operations.
But this week, both retailers managed to jar investors.
On Tuesday, Best Buy said its first-quarter profits rose an unexpected 85 percent as sales of high-end televisions and digital music players soared. Three days later, Circuit City posted a larger quarterly loss as a costly spat with RadioShack Corp. and weak computer sales took their toll.
As Circuit City’s shares began to fall after Friday’s announcement, Smith Barney analyst Bill Sims remarked that the market might have reacted harshly to the nation’s No. 2 chain of electronics stores, which improved its sales and gross profit margins. Still, Circuit City’s numbers looked dimmer than usual after Best Buy’s stunning performance.
Today, says Sims, there is simply no comparison between the two companies. “Best Buy is leaps ahead of Circuit City,” he said.
Circuit City, based in Richmond, said its larger-than-anticipated loss in the first quarter was mostly tied to $11.9 million in pretax costs related to its battle with RadioShack in Canada. The company absorbed another $4.9 million in pretax expenses for consulting services, which executives believe is needed to drive improvements.
Circuit City lost $13.1 million, or 7 cents a share, in the quarter ended May 31. That compared to $5.9 million, or 3 cents a share, in the year-earlier period.
Analysts surveyed by Thomson Financial expected Circuit City to lose 2 cents a share in the recent quarter. Excluding the Canadian expenses, the company lost 3 cents per share — a penny more than the analysts anticipated.
Circuit City’s sales rose about 6 percent to $2.23 billion in the quarter from $2.09 billion in the year-ago period. Domestic same-store sales — revenue at stores open at least a year — were unchanged.
Those figures paled in comparison to Best Buy’s. Shares of the Minneapolis-based retailer soared after it said its quarterly profit rose to $170 million, or 51 cents per share, from $92 million, or 28 cents a share, in the year-ago period. Sales increased 12 percent to $6.12 billion.
The larger retailer benefited from stronger-than-anticipated profit margins and revenue, as well as a new initiative in which stores target specific customer groups like small-business owners or suburban homemakers. This “customer centricity” drive, announced last summer, will be expanded to as many as 200 stores by the end of the fiscal year.
“It was one of those times it’s fun to be in business,” Best Buy Chief Executive Brad Anderson told The Associated Press Tuesday.
Meanwhile, Circuit City was weighed down with costs, mostly inventory write-downs, that resulted from its spat with Fort Worth, Texas-based RadioShack.
Last year, RadioShack filed suit in a Texas district court to end a licensing arrangement with Ontario-based InterTan Inc., which Circuit City acquired in May 2004. A judge has granted a motion for partial summary judgment that bars InterTan from using the RadioShack name in Canada beginning July 1.
Circuit City has since announced plans to rename more than 800 company- and dealer-owned stores to The Source by Circuit City. It also sued RadioShack in an Ontario court last month, accusing the company of trying to harm its Canadian business, among other allegations.
Despite the challenges in Canada, W. Alan McCollough, Circuit City’s chief executive, said management was encouraged by quarterly sales in several key categories, including portable digital audio, satellite radio and advanced technology televisions. The company experienced triple-digit increases in flat-panel television sales.
But those gains were offset by unexpected weakness in notebook and desktop computers, which the company blamed on inaccurate forecasting and a problem with a supplier.
“We fully expect to correct these issues in the PC business,” said company president Philip J. Schoonover.
Circuit City executives said they planned to increase the number of flat-panel, LCD and plasma televisions in its stores while eliminating space devoted to traditional sets.
Such high-end TVs will become increasingly lucrative for retailers as consumers drawn by more affordable prices begin replacing their old sets, said analyst Stephen Baker of the research firm NPD Group.
“It’s a trickle compared to the Niagara Falls we’re going to see in a few years,” Baker said. “There’s an awful lot of opportunity there. (Circuit City) needs to make sure they are positioned to capture that."
