Circuit City Loss Narrows but Outlook Cautious

Circuit City Stores Inc. (CC) on Friday posted a narrower quarterly loss from continuing operations but said its outlook was cautious for the current quarter, which includes the key holiday shopping season.

The No. 2 U.S. consumer electronics retail chain, whose shares fell 2.1 percent in early trading, said its rivals sold more discounted and special-offer items than expected in its fiscal third quarter ended Nov. 30, which hurt its sales of music and movies.

"I think most people are cautious for the fourth quarter now," said Howard Tubin, analyst at Cathay Financial LLC. "As they saw, the environment became more promotional and it may continue right through the fourth quarter."

Circuit City, which has been losing market share to rival Best Buy Co. Inc. (BBY) for several years, posted a loss of $5.9 million, or 3 cents a share, for the third quarter, compared with a loss from continuing operations of $28.1 million, or 14 cents a share, a year earlier. Circuit City sold its credit card portfolio in January.

Analysts on average had forecast a loss of 8 cents a share, according to Reuters Estimates.

Tubin, who rates Circuit City shares "outperform," said third-quarter earnings and gross margins were better than expected, helped by newer stores, higher warranty sales and improved distribution.

On Dec. 6, the company said sales at stores open at least a year fell 4.3 percent in the third quarter, signaling a widening gap with Best Buy. On Wednesday, Best Buy posted a 21 percent increase in its third-quarter profit.

Circuit City said third-quarter sales rose 3.6 percent to $2.49 billion. It sold more higher-margin warranty plans, which helped lessen its loss.

Circuit City has been trying to improve its distribution system, and inventory at the end of the quarter was down 7 percent. But the company said it expects inventory to be slightly higher at the end of the fourth quarter.

Circuit City, which has also been revamping its stores, said it had opened 44 of a planned 60 new stores through Nov. 30, with half of those being relocations of old stores.

It said it plans to open 30 to 40 U.S. stores in fiscal 2006, with half replacing existing stores.

The shares were down 8 cents at $15.20 on the New York Stock Exchange (search) after falling as low as $14.88 earlier.