Power Outage at Circuit City

It was bad.

As expected, electronics retailer Circuit City (NYSE: CC  ) posted a tough first quarter, and investors' only consolation is that the company can't miss expectations going forward. That's because management pulled the plug on guidance for the remainder of the year.

So while archrival and industry leader Best Buy (NYSE: BBY  ) posted a surprising drop in first-quarter earnings, it still managed to grow sales 14% and post positive same-store sales. Circuit City, on the other hand, just reported a 4.3% fall in total sales, negative comps of 5.6%, and an earnings loss of $0.33.

Only the domestic entertainment segment was able to grow sales, thanks to the popularity of the latest video game consoles, including Microsoft's (Nasdaq: MSFT  ) Xbox and Sony's (NYSE: SNE  ) PlayStation. Computer software also sold well, but it did little to offset plummeting sales of old-school projection and tube televisions, as well as notebook computers, camcorders, and DVD players.

As you might have guessed, comps rose for flat-panel TVs -- it was a high-single-digit gain, but it still was not enough to make up for the challenging trends in most other product categories. It's gotten so bad that management withdrew providing guidance for the rest of the year, which wasn't that great to begin with. It has been calling for continuing operating margins of less than 2%.

If you're an optimist, you see better days ahead. Circuit City stores are beginning, in the company's words, to "roll out the new retail operating platform, convert to the new point-of-sale system in additional stores, gain experience with the new organizational structure," and make other improvements to get sales and earnings trends back in a positive direction. However, management's inability to quantify how things might turn out through the end of the year leaves me firmly placed in the glass-is-half-empty camp.

For related Foolishness:

Best Buy is a Motley Fool Stock Advisor recommendations, and Microsoft is a Motley Fool Inside Value recommendation. Try any of our Fool newsletters free for 30 days.

Fool contributor Ryan Fuhrmann is long shares of Microsoft but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.


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