It sure is nice of consumer electronics (and other goodies) retailers Circuit City (NYSE:CC) and Best Buy (NYSE:BBY) to report their financials on the same day, isn't it? Both companies turned in results through November this morning.
Both companies did pretty much as expected. Quarterly same-store sales fell about 1% at Circuit City, though the company was optimistic about November figures. Comps improved 8.6% at Best Buy even with reduced promotional expense.
Clearly, Best Buy is the better company. Many factors make Best Buy the leader, but one of the biggest comes down to a better shopping experience. Which is why I was surprised to read that only 20% of Circuit City's superstores had been upgraded -- for company purposes, this could mean built, remodeled, or relocated -- to its updated format since the company began the program in fiscal 2001. Having grown up with the company's "traditional" stores and their often un-compelling layout and product presentation, I can understand why so many folks were drawn to Best Buy's bright, lively spaces.
Circuit City knows its changes are working. The 21 stores it's relocated that have been open more than six months are performing significantly better than the rest of its stores. The company remains committed to improving its locations and its stores -- but there are drawbacks. Put simply, the changes take time, cost money, and disrupt sales.
The costs of these changes aren't discussed in company press releases, but they're broken out in SEC filings as a component of SG&A expense. (In Q1, for example, the company spent $16.5 million, or about 1% of SG&A, to update nine superstores, fully remodel one, and relocate three.)
Circuit City gets credit for working to improve its stores by updating the shopping environment (moving salespeople off commission) and getting out of appliances and the no-go Divx. Still, with Best Buy still performing at a much higher level by comparison, one wonders whether Circuit City has done enough in the battle for market share.
With a strong balance sheet and new funds following the sale of its credit card portfolio, perhaps the company should consider picking up the pace. Admittedly, an uneven history of free cash flow complicates the picture, and Circuit City seems wary of overspending. If the store reworkings really do deliver, though, investors would likely accept near-term profit pain.
Want to share your thoughts on Circuit City's changes? Join in the chat on our Circuit City discussion board.
Dave Marino-Nachison can be reached at [email protected].
