The Warranty Windfall

Here's a secret two of the nation's largest consumer-electronics chains don't want investors to know. As TVs, portable DVD players, and other stuff fly off their shelves, Best Buy Co. (BBY ) and Circuit City Inc. (CC ) aren't banking on them to rake in the profits. Instead, they're counting on the extended warranty contracts that they sell aggressively along with the goods.

Warranties cost virtually nothing to market, and the products they insure rarely need repairs. Says FTN Midwest Securities Corp. analyst Daryl Boehringer: "It's just pure profit flowing down to the bottom line."