Foolish Forecast: A Jam at Circuit City

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Electronics retailer Circuit City (NYSE: CC), which is still feeling the effects of a turnaround plan, will report third-quarter 2008 financial results on Friday.

What analysts say:

• Buy, sell, or waffle? More than two dozen analysts follow Circuit City, with 21 saying the stock is a hold. Three actually say buy and only one says to sell. The Fool's Motley Fool CAPS community says sell, rating the stock just one out of five possible stars.
• Revenue. Sales are expected to fall 3% from last year, to $3 billion.
• Earnings. Earnings are expected to fall to a loss of $0.31 per share from a loss of $0.09 in the third quarter last year.

What management says:
The shake-up management instituted is still being felt around the company. The reverberations led President and CEO Phillip Schoonover to admit last quarter that it has been a major disruption, but more surprising has been the company's difficulty with putting popular products on its shelves. Rival Best Buy (NYSE: BBY) seems to have the formula down pretty well, something it can improve on when it starts selling Dell (Nasdaq: DELL) computers in its stores next year.

What management does:
Circuit City can't seem to plug into profits. It has already forecast a weak third quarter, and the market was jolted last time out by the retailer's losses, even though it was already expecting a bad report. The company has been having trouble countering the declining prices of flat-screen TVs and the discounted sales at competitors like Wal-Mart (NYSE: WMT). Moreover, with consumers strapped for credit, you have to wonder how much that will hurt Circuit City.

Margins	8/06	11/06	2/07	5/07	8/07
Gross	24.3%	23.8%	23.6%	23.2%	22.5%
Operating	2.3%	1.6%	1.2%	0.4%	-0.8%
Net	1.4%	1.1%	-0.1%	-0.6%	-1.2%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
It's hard to look at Circuit City's operations and come away hopeful that its turnaround plan is taking hold, despite management's cheery prognostications. Even though the stock is looking awfully cheap these days -- it sells at less than book value and sports a minuscule price-to-sales ratio that makes Best Buy's low ratio look positively fat by comparison -- there's ample reason for the electronics retailer to be cheap.

There's no reason for investors to think that Best Buy's outstanding performance translates into hope that a rising tide lifts all boats. Or for them to automatically assume that Circuit City will lose major market share to Best Buy, which is probably the case. But investors would be wise to wait out the storm here.

Related Foolishness:

• Circuit City Shorts Out
• Circuit City Tunes Up Again
• Best Buy's Bold Quarter

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