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Best Buy, Circuit City Post Opposite Quarterly Results

16 Jun, 2004 By: Erik Gruenwedel

Consumer electronics retailers Best Buy and Circuit City reported first-quarter 2005 results that indicate the gap in performance and outlook between the two rivals remains significant.

Best Buy posted a 63 percent increase in net income of $114 million, or 34 cents per diluted share, on revenue of $5.5 billion for the quarter ended May 29, compared to $69 million, or 8 cents loss per diluted share, on revenue of $4.7 billion during the same period last year ended May 31.

Despite reducing a year-to-year quarterly net loss from discontinued operations, from $18.6 million to $707,000, Circuit City posted a net loss of $5.9 million, or 3 cents per diluted share, on revenue of $2 billion, compared to a net loss of $46.7 million, or 23 cents per diluted share, on revenue of $1.9 billion during the same period last year.

In an investor call, Alan McCollough, chairman, president and CEO of Circuit City, had little to praise except “continued strong sales” from its e-commerce site.

“We are disappointed in our first-quarter gross margins,” McCollough said, which at 23.2 percent remained unchanged from last year. “We must reduce the cost of acquisitions, examine the products and price points, improve income forecasting, make better fact-based decisions and increase store-brand products.”

Regarding the latter, company officials plan to introduce a slew of unidentified “cool gadget items” for the holiday season.

Many of the unidentified store-branded products are expected to originate from Radio Shack in Canada, which Circuit City acquired along with Rogers Wireless and Battery Plus for $280 million.

“We still have much to accomplish,” McCollough said.

By contrast, Best Buy, which reported a 20 percent rise in entertainment software sales, including DVD movies and music, in October will launch up to 74 “consumer centric” retail operations in California.

The store-within-a-store concept, along with the Geek Squad 24-hour, rapid-response computer and home entertainment service, is part of Best Buy's strategy to focus on customer service instead of product.

“It will drive customer loyalty and comparable same-store growth,” said Brad Anderson, VP and CEO of Best Buy.

The company also plans to expand by 50 percent its offerings of flat-panel LCD and plasma televisions, in addition to increasing in-car and portable video units.

Anderson remained optimistic that test sites in San Francisco and Costa Mesa, Calif., of Magnolia Home Theatre, suggest the in-store concept catering to affluent, early-adopter customers will survive.

“It's still too early to declare a trend,” Anderson said.

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