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Circuit City's Sales Better Than Expected

Retail: In latest evidence of a turnaround, consumer electronics seller posts 10% gain in December over year ago.

January 08, 2002|ABIGAIL GOLDMAN | TIMES STAFF WRITER

Circuit City Stores Inc., bucking the retail industry's sluggish holiday season, Monday reported a better-than-expected 10% gain in December sales versus a year ago. It also said fourth-quarter earnings will probably beat analysts' expectations.

The upbeat news was the latest evidence of a turnaround at the Richmond, Va.-based consumer electronics seller, which has revamped its product mix while improving customer service.

As a result, the company's stock has surged in recent months and rallied sharply Monday.

"Circuit City is a company that is reinventing itself," said Jefferies & Co. analyst Donald Trott. The company was helped by more promotional pricing, a favorable sector backdrop and improvement in in-store execution, he said.

Floor space that had been occupied with washers and refrigerators two years ago gave way in December to products that are particularly hot in the holiday selling season, such as video game cartridges and consoles and digital cameras.

A revamped employee pay structure meant improved employee morale, which allowed the company to provide better customer service with fewer employees, analysts said.

Circuit City executives Monday said strong sales in personal computer hardware and software, DVDs and digital cameras helped propel sales in each of the company's 15 operating regions, which will boost fourth-quarter earnings by as much as 5 cents a share, to 72 to 76 cents a share.

Analysts polled by Thomson Financial/First Call had expected quarterly earnings of 71 cents on average.

Shares in Circuit City rose $2.29 to close at $29.75 on the New York Stock Exchange. Although the stock earlier in the day hit a 52-week high of $31.40, it is well off its peak in 2000 of $61.

In a conference call Monday, Chief Executive W. Alan McCollough said the company expects January and February sales to remain healthy. He reiterated a management forecast of mid-single-digit gains in stores open at least a year.

Those numbers, however, are based on comparisons with dismal results from a year ago, when sales for the first quarter were off 25%.

Still, analysts said, Circuit City's December sales figures, coming after November's 6% year-over-year gain, affirms the company's changes. These include Circuit City's decision 18 months ago to get out of the appliance business.

That move, which was partly responsible for the 25% same-store sales decline in the first quarter of 2001 and a 21% decline in same-store sales in the second quarter compared with a year earlier, paved the way for Circuit's December success, company executives said.

In a note to clients, analyst Shelly Hale of Banc of America Securities said there is room for gains in Circuit City's market valuation.

"Circuit City was able to post a strong December [sales gain] despite operating under a challenging macroeconomic climate," Hale said.

"In addition, as management noted repeatedly on the call, the company was able to post stellar [sales gains] despite the fact that Best Buy opened 56 stores in 2001 in Circuit City markets."

In contrast, the nation's third-largest electronics seller, RadioShack Corp., said Monday that December sales in stores open at least a year fell 2% as compared with a year earlier

The Fort Worth-based company said sales for the fiscal year to date are up 1% in stores open at least a year, however.

RadioShack also said earnings per share for the year are likely to rise 13% to 15%.

RadioShack stock rose $1.29 to $30.92 on the NYSE.

Same-store sales--or sales from stores open at least a year--are considered an important measure of a company's health because the number excludes new and closed stores.

"Circuit City had a lot of problems other companies didn't have," Jefferies analyst Trott said. "You're coming back from a depressed level [that] is a little different than some of the other companies."

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