Circuit City, Best Buy have merry Dec.


MINNEAPOLIS -- The holiday season could have been ugly for electronics retailers, with deep Black Friday discounts and high-definition TVs so common even Home Depot had them.

But the nation's two largest consumer electronics chains relieved some of that worry with strong December sales results.

"Clearly, both companies bounced back in the latter part of December, and we think the momentum has really carried through in the early days of January," said Lehman Brothers analyst Alan Rifkin.

Circuit City Inc. said sales at stores open at least a year rose 4.2% in the month from a year ago, roughly in line with analysts' estimates. Best Buy Co., the larger chain, said sales for the month rose 7% at stores open at least 14 months, significantly better than the 5% estimate by analysts. Measures of sales growth at existing stores are a key retail barometer.

Rifkin said Best Buy's same-store performance was even more impressive considering that each of its locations already bring in about twice as much revenue as those of Circuit City Stores.

Best Buy and Circuit City said they saw strong double-digit increases in high-end televisions. Best Buy said results were driven by employees who got more customers to buy products during store visits. Rifkin said prices on flat-panel televisions will probably drop 25% to 30% this year, and that should boost demand further.

"I see no falloff at all in the insatiable thirst on the part of the consumer to acquire these TVs," Rifkin said.

Best Buy said overall December revenue grew 15% to $6.6 billion from a year ago. Circuit City said total sales grew 5.9% to $2.1 billion.

The results were a bright spot in a month that was weak for many other retailers, although both Wal-Mart Stores Inc. and Target Corp. reported strong electronics sales on Thursday.

Rifkin and Jefferies & Co. analyst Timothy Allen both said about 25% of U.S. households have bought such TVs. Some analysts see that number and think of the other 75%.

Allen thinks the best customers might have already bought. He said the households with the most disposable income are probably the ones who were first to buy high-end TVs.

"Once you've penetrated that market, you've definitely hit, the easy, low-hanging fruit," he said. After that it's a matter of customers waiting for price declines -- and that makes profits smaller.

He added, though, that the switch to digital TV broadcasts currently slated for 2009 will continue to create a reason to buy.

Other categories had more mixed results.

Portable music players such as iPods rose in the double-digits at both chains. Sales of desktop computers declined while sales of notebook computers increased -- analysts blamed customers waiting for Microsoft's new Vista operating system for the weak computer results.

Best Buy said entertainment software sales rose 8.8% in December from a year ago as customers bought video games to go with those new Nintendo Wiis and Sony Playstation 3s.

"Strong gains in video gaming more than offset continued softness in CDs and DVDs," the company said. It also said appliance sales slipped 2.7% after gaining 7.7% during December 2005.

The two companies have very different international operations, and they turned in very different results for December. Circuit City's Canadian presence is mostly former Radio Shack stores called The Source by Circuit City. The company's international same-store revenue dropped 4.1% from a year ago, and it would have been worse if not for the falling dollar.

Best Buy got $1 billion in international sales -- almost 10 times more than Circuit City -- and comparable-store sales gained nearly 13% from a year ago. The results did not include sales from Best Buy's new stores in China.

Best Buy, which is based in Richfield, said Friday it expects to earn $2.70 to $2.80 per share for the full year, tightening the range from a previously announced $2.65 to $2.80. Analysts surveyed by Thomson Financial were expecting $2.75 per share.

Best Buy said its same-store sales gain for the full year would be about 5%. Circuit City, based in Richmond, Va., said it expects domestic same-store sales to grow 7% to 8%, up from previous guidance of 6% to 7%.

Shares in both companies jumped around 4% in pre-market trading Friday morning, but it didn't last. On the New York Stock Exchange, Best Buy shares rose 21 cents to $50.05, while Circuit City fell 68 cents, or 3.4%, to $19.32.