Key Takeaways From Best Buy, Circuit City Earnings: Vista's Selling Well, TVs Are Cheap

Best Buy (BBY) and Circuit City (CC) each reported earnings and provided some color on the technology sector's health. Key takeaways: Vista demand seems fairly strong and flat-panel TV prices are crumbling.

Comparing Best Buy and Circuit City is a bit of apples and oranges. Best Buy is the class of electronics retailing and Circuit City is a mess. For instance, Best Buy reported fiscal 2006 net income of $1.37 billion. Circuit City lost $11.8 billion.

However, both companies' financial statements do provide key indicators. Here's a look at the main items and the bottom line.

Vista demand (see blog focus and reviews):

Best Buy:

"Home office products, which accounted for 27 percent of fiscal 2007 fourth-quarter revenue, were steady with a comparable store sales increase of 0.2 percent. Contributing to the results was the launch of Microsoft's Vista operating system, which accompanied double-digit comparable store sales increases for notebook computers and computer services."

Circuit City:

"Our PC hardware business experienced volatility around the Microsoft Windows Vista operating system transition. PC hardware posted strong sales growth in both December and February, but January sales were impacted as we kept PC inventories lean in advance of the transition."

Takeaway: Vista demand appears to back up Microsoft's recent statements, but Circuit City blew it by not having enough products in the store.

Flat-panel TV prices (reviews):

Best Buy:

"Consumer electronics, which represented 46 percent of fourth-quarter revenue, posted an 8.5-percent comparable store sales gain. Within consumer electronics, flat-panel TVs experienced a strong double-digit comparable store sales gain as declining prices led to higher volumes and increased screen sizes. Total television comparable store sales grew by double-digits as flat-panel TV growth was partially offset by declines from tube and projection TVs."

Circuit City:

"During the quarter, flat panel television average selling prices were well below the prior year…In the video category, Circuit City produced a low-single-digit comparable store sales decrease in the fourth quarter. Total television comparable store sales were approximately flat compared with the prior year period, as double-digit comparable store sales growth in flat panel televisions was offset by double-digit comparable store sales declines in projection and tube televisions."

Takeaway: It's a good time to buy a flat-panel TV and many folks are upgrading to high definition sets. Of course, 6 months from now the timing will be even better. Best Buy said "it believes it gained significant market share in electronics, particularly flat-panel TVs, due to successful promotional strategies."

Desktops (reviews) and printers (reviews):

Best Buy:

"The gains from notebook computers and computer services were nearly offset by declines in comparable store sales of printers and desktop computers."

Circuit City:

"In the information technology category, Circuit City produced a low-single-digit comparable store sales increase in the fourth quarter. Comparable store sales in PC hardware increased by low-single digits as a double-digit increase in notebook computers was partially offset by a high-single-digit decline in desktop computers."

Takeaway: Nothing too surprising here. Desktops are so last century. Best Buy's printer comments are worth noting for future reference.

Comments

[Kevin Stecyk:]

Larry, I am not sure how you conclude that Vista sales are strong. According to your own ZDNet linked article, we see that the 20 million is on a much larger base. In other words, the release of XP was much more impressive.

<blockquote>Micr... claims Windows Vista is off to a fast start, having sold more than 20 million copies since its January 30 consumer release.

By comparison, in its first two months, Windows XP sold 17 million copies, Microsoft said.

"We are encouraged to see such a positive consumer response to Windows Vista right out of the gate," Corporate Vice President Bill Veghte said in a statement Monday. "While it's very early in the product lifecycle, we are setting a foundation for Windows Vista to become the fastest-adopted version of Windows ever."

Of course, the PC market has grown substantially since XP hit store shelves. In 2001, worldwide PC shipments totaled 136 million units, while last year the industry shipped 227 million computers, according to IDC. </blockquote>

Moreover, many people bought PCs in 4Q 2006 so that they would have XP and would get the free upgrade Vista CDs. They are still waiting for all the incompatibilities to be worked out before actually upgrading.

<blockquote cite="www.cnet.com.au/softwa...">Running Creative Suite 2.0 on Windows Vista is "not recommended" and it will not update those products for Vista, Adobe said.

"While some of its components, including Adobe InDesign CS2, Illustrator CS2 and Photoshop CS2, install and run under Windows Vista with only minor known issues, other components such as Acrobat 7.0 Professional do not support Windows Vista," according to the statement.</blockqu...

What I found interesting about BBY is that same store sales in the U.S. grew only 4.8% while they grew 14% internationally. While the U.S. is experiencing real estate woes and a slowing economy, will BBY continue to hit its numbers for the remaining quarters of the year. I note that the stock is down about 1.7% while the Dow and S&amp;P are slightly up.

2007 Apr 04 12:16 PM

[Kevin Stecyk:]

My second quote from above was sourced from: Adobe to CS2 users: Want Vista? Upgrade.

2007 Apr 04 12:18 PM

[Malkiel:]

Neither they nor you are entitled to conclude that sales of PC's with Vista included as the OS is the same as "demand for Vista". It is demand for PC's. We know that Microsoft is desperate to spin this story and you're just serving their purposes; Microsoft pulled XP from the store shelves so that nobody who bought a pc in that period would have an alternative to Vista on a non-Macintosh machine. Whether consumers were deliberately looking for Vista or just needed a PC is not answerable with this data and the inference should not have been made.

2007 Apr 04 02:32 PM

[Kevin Stecyk:]

Malkiel, I am entitled to conclude anything I want. Whether I am right or not is another question.

Of course, MSFT pulled XP off the shelves. What did you expect?

Wouldn't a better methodology to cage the acceptance XP be as follows:

1) How many XP units were sold when XP was released? And what was the installed user base?

2) How many Vista units were sold when Vista was released? And what is the installed user base?

That will provide us with a glimpse of how enthusiastically Vista is being adopted. Are users lining up at Best Buy, Circuit City et al., to buy this new upgrade. Or will they "make do" with what they've got until their pc needs to be replaced?

Another thing you can do is look at popular software packages and peripherals to see if they are compatible. That will also provide a cage of adoption. If there are severe compatibility problems, then we can begin to make some inferences, can't we?

You might want to Google for incompatibilities. There are a lot of institutions that are NOT upgrading because of incompatibilities.

Again Malkiel, last I checked freedom of speech is still allowed and that allows me to conclude whatever I want. So don't go telling me or others what we are entitled to.

2007 Apr 04 02:44 PM

[Malkiel:]

Pay attention, Stecyk, my comments were aimed at Dignan and Best Buy's comments, not yours, which are largely in agreement.

2007 Apr 05 02:24 AM

[Kevin Stecyk:]

While I am not interested in getting in a flame war with you, had you paid attention, you would have noted that I said, "Again Malkiel, last I checked freedom of speech is still allowed and that allows me to conclude whatever I want. So don't go telling me <b>or others</b> what we are entitled to." In other words, Larry, too, is entitled to voice his opinion on whatever matter his chooses. And unlike you, he is courageous enough not to hide behind a veil of anonymity, but rather provide his real name and identity. Usually when people provide their real identity, they tend to be more civil and courteous.

And with that, I am glad we agree on the Vista sales. At least we agree about something. :-)

2007 Apr 05 09:00 AM