Best Buy, Circuit City sales soar in December
Published: Saturday, January 7, 2006 at 6:01 a.m.
Last Modified: Saturday, January 7, 2006 at 12:00 a.m.
MINNEAPOLIS - Retailers who wondered where their customers went during a so-so holiday season might have tried looking in the TV aisles at Best Buy and Circuit City.
The nation's two largest consumer electronics retailers both reported strong holiday revenue on Friday driven by surging sales of high-end televisions and larger average purchases. December sales jumped 5.8 percent at Best Buy Co. Inc. stores open at least 14 months. The increase was 10.8 percent at Circuit City Stores Inc. locations open at least a year, a key industry barometer of a retailer's health.
Best Buy said fourth-quarter earnings would be near the top of its earlier guidance - previously announced at $1.06 to $1.16 per share - and its stock rose $3.55, or more than 8 percent, to close at $47.05 on the New York Stock Exchange.
Circuit City shares rose 15 cents to close at $22.94. Best Buy shares had been knocked down from around $50 a share in December by a disappointing outlook, while Circuit City shares have been climbing steadily from about $16 a share in September.
Both companies said sales of flat-panel TVs more than doubled at existing stores, and reported double-digit percentage increases in digital audio player sales. Both reported declines in sales of DVD players, whose prices have been falling.
Both said video game hardware sales rose during the first full month of Xbox 360 sales, though Best Buy said video game software declined as customers slowed purchases for existing platforms.
Analysts said the two retailers are benefiting from the gift-giving shift toward TVs and gadgets.
"For the first time, both industry leaders are posting numbers suggestive of a strong product cycle," Goldman Sachs analyst Matthew Fassler wrote in a note to clients.
Best Buy Vice Chairman and Chief Executive Brad Anderson said he was "pleased and encouraged by the fact that virtually all of our businesses met or exceeded our expectations for December. As usual, customers shopped later than ever and results strengthened as the month progressed."
Best Buy also saw appliance sales rise 7.7 percent, probably spurred by homeowners trying to offset higher energy prices with more efficient appliances, said Craig R. Johnson, president of retail consulting firm Customer Growth Partners.
Both companies said overall revenue rose 12 percent from December 2004, to $5.7 billion for Best Buy and $1.98 billion for Circuit City.
Johnson said the two companies posted the strong results despite tough competition from Wal-Mart Stores Inc. and other discounters jockeying for TV customers, and despite the wide availability of the iPod music player.
Those kinds of productsonce belonged mostly to Best Buy and Circuit City, but they're are getting easier to find in non-electronics stores and online.
Both reported strong gains in Web sales. Best Buy saw online revenue jump 40 percent as more customers shopped and redeemed gift cards online.
Circuit City reported strong growth in its "Web-originated sales," which rose 49 percent in December compared to the same month in 2004. W. Alan McCollough, Circuit City's chief executive, credited the company's express pickup service, which allowed customers to order gifts online as late as Christmas Eve and then pick them up at stores.
It "was a competitive advantage during the month," McCollough said.
Richmond, Va.-based Circuit City raised its sales outlook for its current fiscal year, predicting total sales growth of 10 percent to 12 percent, up from a range of 8 percent to 10 percent.
Circuit City has been turning around its business - relocating stores, narrowing its focus and revamping its merchandising. Its earnings have pleasantly surprised Wall Street in the past two quarters.
Analysts have been impressed, but some have warned that the smaller chain won't be able to keep up much longer with retail heavyweights including Best Buy and Wal-Mart.
Credit Suisse analyst Gary Balter wrote in a note to clients that Friday's strong results in TVs, music players, accessories and video games are encouraging, though.
"We continue to believe that the strong cycles in each of these categories should drive positive results through 2006," he wrote.
Best Buy said it would delay its fourth-quarter plans for converting more stores to an approach that focuses on particular customer groups, such as soccer moms or small-business owners.
However, its seven new stores planned for the quarter will use the new format, Chief Financial Officer Darren Jackson said. Best Buy had warned last month that it would slow its segmenting initiative because it is costing more than expected.
"Our goal is to balance high-return initiatives with the operational costs," Jackson said.
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