While Best Buy Sneezes, Circuit City Will Catch Pneumonia

Best Buy (BBY) reduced FY earnings and the news sent the stock down over 3% Friday. Knowing Best Buy is well run and Circuit City (CC) is not, investors sent City shares down twice that.

For the fiscal year ending March 1, Best Buy reduced its outlook to per-share earnings of $3.05 to $3.10 from $3.10 to $3.20. Expected same-store sales growth was cut to 2.5% to 3% from 4%, and the company maintained its outlook for revenue of about $40 billion. CEO Brad Anderson said that although the company's December results were in line with expectations, "soft domestic customer traffic in January, coupled with our near-term outlook, now indicate that our fourth-quarter revenue will fall short of our planned targets."

Circuit City has said nothing specific about upcoming numbers (assume the worst) but did do something noteworthy. After Best Buy, Wal-Mart (WMT) and NetFlix (NFLX) announced they will go exclusively with the "Blue-ray" HD DVD format, Circuit City, apparently the last one in the loop, was forced to price cut a stand-alone HD player that plays both Sony Corp.'s Blu-ray disc and Toshiba Corp.'s HD DVD format titles by $100.

I can't wait to hear CEO Schoonover's excuse for the latest quarter. Maybe, "Perhaps were overly optimistic about a cash strapped consumers willingness to buy soon to be irrelevant technology".

Disclosure: Long Wal-Mart.

Comments

[daffy:]

What good news is there about CC?

It always seems like it is always negative on SA.

I bought in at about 4.10, and I am kind of curious as to whether to get out now, or wait out another few months before the next quarter's earnings are released. I hate to get into a non dividend paying slump of a non-performer.

The only good news is that I saw an article on customer satisfaction and CC's customer satisfaction rose 3% and BBY's went down 3% (according to rankings). I may be wrong on those numbers and it may be rating points (on a scale of 100). Regardless, that is no news since anyone who shops at both stores would probably readily tell you that BBY is a hugely high pressure sales arena. It almost feels like if BBY could cram stuff down your throat as you walk out the door they would. At least CC is mildly better.

How come no one ever mentions the fact that CC has so much cash floating around (maybe not for long) that at one point this winter, well over 50% of the stock's value was in cash?

Oh well, I still don't want to get stuck with a non-performer. I would just like to see if they is anyone out there who believes that I should hold onto my CC stock when I am already up quite a bit.

2008 Feb 20 09:45 PM

[coopsta:]

I've been holding on to my CC stock since it was at about 3.00 per share. Like you, I'm waiting for the big 20.00 climb. Will it happen?

2008 Feb 25 02:47 PM

[Todd Sullivan:]

daffy,

the cash is falling.......

2008 Feb 25 08:05 PM

[daffy:]

Coopsta ~ I fear that $20 is not going to happen this year, or next. I was thinking that if everything fell into place, then the 80 month EMA would be had in November (around $15). That was before I factored in the election year impact. I just don't see it happening. I also think that CC is burning through the cash at a furious rate. If that is the case, then S & P will downgrade them unless thier earnings improve ahead of the sector. Again, a hugely doubtful situation given Schoonover's attack. One thing to remember Coopsta, the purse strings are tight, and people are going to demand more satisfaction from their money. We have been in boom years, and these comapnies have reaped the rewards of bash 'em over the head sales techniques. People aren't going to put up with being bloody anymore, and it is all these comapnies know. I therefore predict a huge disconnect between the consumer and the big box electronic stores (much like the Schoonover disconnect). Even if people spend the same amount of their discretionary income, they are going to seek out what not only the products that make them feel good, but also the sales experiences.


I think I am out of CC if it gets even a whisper close to hitting a %30 gain for me. I am sure there will be grimmer days when the 1st and 2nd qtrs come in (and might be a better time to buy back in).

just my two cents

2008 Feb 25 10:09 PM

[Todd Sullivan:]

i have a post coming tomorrow...

schoonover may be out....... that is very good news for the company

2008 Feb 26 02:17 PM

[billddrummer:]

with Wattles nominating his own slate of board members and probably continuing to add to his position as trends remain poor, I think you're absolutely right. I think it's a 50/50 shot that Schoonover survives even to the annual meeting in June. Comps are horrible, gross margins are down (again, still, whatever...) operating losses will leap in January because traffic fell off just like at BBY, and the "turnaround initiatives" that have been tried over the past three years are failing. I wonder whether CC paid the WSJ to interview Schoonover when it's clear that the company's performance didn't reflect anything but gross mismanagement of the turnaround process.

Now the bigger question is this: How long will it take for CC to regain some value in its stock? I'm guessing 2 years at minimum, because this ship has been foundering since March 2006--coincidentally, when Schonoover took over. So if you're in at $4-$5, you might see $9-$10 by 2010. But that presumes they can win back the customers that have been driven off over the past two years.

I've got nothing invested in CC except a morbid fascination with a company that can seemingly do nothing but wrong.

2008 Feb 26 05:51 PM

[ebsuku:]

Wait until the June meeting where you can help vote the board out (hopefully). If the board & Phill completely ignore Wattles, dump it.

2008 Mar 04 01:07 PM