- The Washington Times - Tuesday, June 25, 2002

Shares of Circuit City Group dipped slightly last week as analysts refused to get excited over the company's recent earnings report.
The Richmond-based electronics and music retailer announced last week that quarterly income rose 72 percent compared with the like quarter a year ago, but observers of the stock say there's still work to be done to catch rival retailer Best Buy in market share.
"Operations did demonstrate [year-to-year] improvement," Merrill Lynch analyst Peter Caruso said in a research note. "Looking at past [first financial quarters] however, it is evident that Circuit has a long way to go in terms of achieving historical levels of profitability."
Shares of Circuit City Group fell 16 cents yesterday to close at $18.99 on the New York Stock Exchange. They have fallen nearly 35 percent this year.
A large chunk of Circuit City's income improvement came from its CarMax automobile sales division, of which it owns 65 percent. CarMax pulled in $18.7 million, or 9 cents per share. Circuit City's electronics division alone lost $1.3 million, or 1 cent per share, up from a loss of $9.6 million, or 5 cents per share last year.
Analysts said the 72 percent increase in Circuit City Group's income over the like quarter of last year is nothing to write home about, because it had nowhere to go but up. Income during the first quarter of 2001 had plummeted to just $10.1 million, or just 5 cents per share.
The last quarter was one of restructuring for Circuit City. The company increased promotions and the number of products for sale, while remodeling stores and replacing appliances with more compact discs, video games and DVDs.
The company also has begun selling more entertainment software, even though sales there have been sluggish.
"Growth rates in entertainment software continue to slow which should persist now that it represents a larger sales mix," Mr. Caruso wrote.
Circuit City also announced that it would stop selling VHS tapes and would sell DVD movies exclusively, a move that analysts said was a bit risky and ahead of the curve, but probably wise.
"If they take a hit at all it will be minor," said Steve Baumgarten, an analyst with Parker Hunter Inc. in Pittsburgh. "If you look at the sales of VHS versus DVD movies, there's a dramatic difference."
The biggest challenge facing Circuit City is its top competitor, Best Buy, whose market share is nearly 150 percent larger, and growing.
"We agree that Circuit City is doing the right thing in terms of trying to drive sales per store and profitability levels back towards past peak levels," Mr. Caruso wrote. "However, at this point we choose to stay on the sidelines until we see evidence that Best Buy is not impeding that progress."
Best Buy said it would ramp up promotions to preserve market share, and will expand its number of stores.
"[T]he 60 new stores that Best Buy plans to open in the next three years [many right across from a Circuit City] will not make things any easier," Mr. Caruso wrote.
Circuit City said a vote is scheduled next month to finalize the spinoff of the CarMax Group.

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