Discounts Aid Best Buy, Circuit City

December Results for Electronics Retailers Beat Estimates

Best Buy and Circuit City, the largest U.S. electronics retailers, reported December sales that exceeded analysts' estimates after discounts on televisions and computers attracted holiday shoppers.

Both companies raised sales forecasts for the rest of the fourth quarter. Best Buy's sales in stores open at least 14 months climbed 7 percent, while Circuit City's same-store sales increased 4.2 percent.

Electronics sales were a bright spot for retailers facing slowing revenue this holiday season. Flat-panel TVs and video-game consoles such as Nintendo's Wii drove consumers to stores to start the biggest quarter of the year for both Best Buy, based in Minneapolis, and Circuit City, headquartered in Richmond.

"It looks pretty good right now," said David R. Keuler, a managing director at Mason Street Advisors in Milwaukee, which owns shares of both. "The holiday finished well, and people should be pleased about that."

Circuit City raised its annual sales growth forecast to as much as 10 percent, up from as much as 9 percent. Chief executive Philip J. Schoonover said January and February sales growth may slow as customers switch to Microsoft's new Vista computer operating system. Vista is scheduled to be released to consumers on Jan. 30.

Best Buy raised its earnings per share forecast to $2.70 to $2.80 for the year ending in March, from a range of $2.65 to $2.80. Analysts are expecting $2.77, according to data compiled by Bloomberg.

Sales may have come at the expense of profit in a quarter as stores lowered prices to maintain demand.

"The big question now is whether it's sustainable now that we're past the holidays," said Richard Weinhart, an analyst with BMO Capital Markets in New York. "January will be a big month for TVs because of the Super Bowl, but what happens going into the spring? We're expecting some modest slowdown."

Circuit City's fiscal third-quarter gross margin, the share of sales after subtracting the cost of goods sold, fell about 2 percentage points because of price cuts for TVs and computers. About 0.7 of a percentage point of the margin decline stemmed from discounting over the Thanksgiving weekend, the company said. Circuit City had a $16 million loss in the three months ended Nov. 30, 2006.

Best Buy's fiscal third-quarter gross margin fell to 23.5 percent from 24.4 percent as shoppers bought less expensive TVs and laptops. Net income for the three months ended Nov. 25, 2006, was 31 cents a share, trailing the 35-cent average analyst estimate compiled by Bloomberg.