In what could be the first clue to the success of Christmas business for retailers, Circuit City Stores Inc. yesterday said its sales were up sharply but profits were off in the three months that ended Nov. 30, and the pattern continued into December.

Despite a 25 percent increase in sales to $171.5 million, the electronics retailer's profits fell 20 percent to $3.1 million (28 cents a share) from $3.9 million (38 cents) in the crucial three months leading up to the Christmas month.

"Our third-quarter results reflect the generally more competitive retail environment," said Richard S. Sharp, president of the Richmond-based chain that runs 80 stores on the East Coast and another 30 in California.

"Sales and gross-profit-margin performance for existing stores on both coasts so far in December continued November's pattern," Sharp added. "We expect December to end with modest East Coast comparable-store increases."

"On the East Coast, third-quarter gross profit margins, while slightly better than last year, were less than planned due to the competitive environment," Sharp said. The Circuit City and Lafayette electronics stores increased their staffs and placed more ads in anticipation of extra business, but did not get as much growth as expected, he explained. The result was higher operating expenses that were not matched by additional volume.

Circuit City's West Coast stores faced another problem. There the company is in the midst of closing its licensed electronics departments in Zody's discount stores and opening a new chain of Circuit City Superstores. Sales were off 11 percent in the Zody's departments, which will be extinct by March. Seven of the new-generation stores opened during the quarter, and another eight are scheduled by spring.

Circuit City's third-quarter results continued the trend for the firm this year. Sales were up 32 percent to $447.6 million from $339.5 million for the first nine months of the fiscal year; profits were down to $10.4 million (93 cents) from $11.4 million ($1.11).