Best Buy Co. and Circuit City Stores Inc., the largest U.S. electronics retailers, Tuesday posted higher third-quarter profits as brisk sales of video games, digital televisions and DVDs helped boost results.

Circuit City, which ranks as No. 2 in the sector, managed to reverse a year-ago loss in the quarter ended Nov. 30, reporting net income from its retail stores of $21.1 million, or 10 cents a share.

In the year-ago quarter Circuit City, which has been losing market share to bigger Best Buy, had a net loss of $64.4 million, or 32 cents a share, a year earlier.

The Richmond, Virginia-based retailer said better marketing plus cost controls helped its profitability in the quarter as customer traffic to its stores grew.

While investors welcomed Circuit City's results and the company's shares rose, some analysts said it was not yet clear if the retailer was now on a recovery course from the problems linked to its store remodeling and its decision in November 2000 to stop selling appliances.

Marketing, store refurbishment problems and the decision to ditch the business of selling dishwashers and refrigerators have been cited as among the reasons why Circuit City has seen its customers migrate to Best Buy.


Minneapolis-based Best Buy said fiscal third-quarter earnings rose 40 percent as the No. 1 U.S. consumer electronics chain increased its market share of digital products like cameras and big-screen televisions.

Best Buy said net income in the quarter ended Dec. 1 rose to $80 million or 37 cents a share from $57 million or 27 cents a year earlier.

Shares of Best Buy traded up 2.84 percent or $1.96 to $70.96 on the New York Stock Exchange in the afternoon. Circuit City gained 40 cents to 1.96 percent to $24.10 after earlier hitting a new 52-week high of $25.22. Its previous year-high was $24.95.

"Customers have voted with their feet that they prefer the Best Buy format," Rick Fradin, retail analyst with William Blair & Co., said. "That's probably why Circuit City is adjusting their stores."

Although the market for big box retailers remains sluggish because of a weak U.S. economy, Circuit City and Best Buy are, however, seeing some benefits as more Americans opt to entertain themselves closer to home following the Sept. 11 attacks on New York and Washington.

The faltering economy has also led the retailers to go head-to-head with competitive pricing to try to lure customers, a step some analysts said could have restrained growth in Circuit City's gross profit margins.

Among low-priced items the retailers are touting -- especially for the holiday season -- are cameras, DVD players and software, plus video games.

Best Buy said while the personal computer business continued to be weak, the launch of Microsoft Corp.'s new Windows XP operating system was also helping sales of computer peripherals and accessories.

"We are focused on doing the best job for technology and entertainment customers, and we believe our market share continues to grow in many of the digital product categories," Best Buy Chief Executive Officer Richard Schulze said.


Circuit City reported that total sales for the Circuit City Stores Inc. rose 6 percent, to $3.06 billion from $2.89 billion in the prior year.

Best Buy said on Dec. 6 that it expected earnings of 36 cents a share or better, at the high end of a previously lowered forecast. At that time it also reported total sales in the third quarter rose 27 percent to $4.76 billion from a year ago. Same-store sales rose 1.6 percent.

But Dan Wewer, an analyst at Deutsche Banc Alex. Brown said he believes that Circuit City's third-quarter performance marked a change in the company's business performance.

"The company has improved store executions and is closing its sales gap with Best Buy. We believe that Circuit City is no longer losing market share to Best Buy," he said in a research note after raising his rating on Circuit City to "buy" from "market perform".

David Schick, an analyst at SunTrust Robinson Humphrey said "Circuit City results further support several reasons to own the stock".

Year-to-date Circuit City's stock price has more than doubled from its previous 52-week low of $9.3750, narrowly tracking a similar gain in the shares of rival Best Buy. Over than period the Standard & Poor's Index of electronic retailers is up about 50 percent.