Best Buy, Circuit City Clean Up

Shares of both consumer electronics retailers climbed Friday as the companies reported strong December sales

After having duked it out for customers with aggressive promotions this holiday, the consumer electronics retailers Circuit City Stores (CC) and Best Buy Co., Inc. (BBY) both won more sales in December.

The Minneapolis company Best Buy said Jan. 5 it had 7% more sales at stores open more than a year, while Richmond (Va.)-based Circuit City announced a 4.2% increase.

Both retailers went above and beyond to pull in the crowds on this season. With rivals like Wal-Mart offering discounts on hot items like flat panel TVs, the competition has been tough. Best Buy joined the fray, unloading its wallet on promotions at Thanksgiving weekend. Meanwhile Circuit City has been playing the same game even as it spends on new services that others already have, such as a new point-of-sale (POS) system intended to reduce costs and shorten checkout lines.

Circuit City's CEO Philip J. Schoonover now thinks his company's net sales will grow by 9-10% during fiscal year 2007, up from 8-9%. "Comparable store sales are expected to grow for the quarter, but the pace of growth should moderate in January and February as we may experience some sales volatility surrounding the transition to the Microsoft Windows Vista operating system in PCs and as the company cycles through strong year-over-year comparisons, particularly in Web-originated sales," Schoonover said in a press release Jan. 5.

Best Buy now expects earnings of $2.70 to $2.80 per share for its fiscal year ending in February, an average increase of 21 percent from fiscal 2006. Best Buy's December sales gain had topped its 5.8% gain during the same month of 2005.

"We had exceptional results across the company," said CEO Brad Anderson in a press release Jan. 5. He said Canadian stores had strong results, as well as his online business. He also thinks his company's recent investments in faster checkouts, improved in-stock levels and marketing appear to be paying off.

Investors bought up Best Buy's stock by 1.7% to $50.66 per share, while Circuit City shares dropped 1.8% to $19.65 in midday trading on the New York Stock Exchange.

The news on Jan. 5 comes after numerous other retailers posted mixed results the previous day (see, 1/5/07, "Sales Gap at the Gap"). Industry players have been buffeted by factors ranging from cautious consumers to warmer than expected weather, which some blamed for keeping winter clothing inventory on their shelves. Wal-Mart Stores (WMT) said Jan. 4 that its U.S. sales at stores open more than a year gained 1.6% during the five weeks ended Dec. 29, down from 2.5% during the same period of 2005.

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