With a stock that's risen 60% over the last 12 months, investors clearly have high hopes for retail electronics vendor Circuit City (NYSE:CC). Will those hopes pan out? Tune in tomorrow for the latest update on the company's efforts to remain relevant in a Best Buy (NYSE:BBY) world. Circuit City reports its Q4 and full-year 2005 numbers before market-open.
What analysts say:
- Buy, Sell, or Waffle? Twenty-six analysts circle Circuit City, but the vast majority of them are ambivalent about the stock. Five rate it a buy, three a sell . and 18 a hold.
- Revenues. Wall Street will be looking for quarterly sales growth of 9% year over year, with $3.89 billion as the sales target.
- Earnings. Analysts expect that relatively tame sales growth to translate into 33% better profits this Q4 than last. $0.77 is the profits target.
What management says:
According to a press release back in January, Circuit City got off to a good start in Q4, posting a 12.1% year-over-year increase in sales for the critical holiday month of December, a number supported mightily by the firm's 10.8% increase in same-store sales. Also notable in that update was the firm's 49% increase in "Web-originated sales" -- where customers buy an item online, then drive to a bricks-and-mortar Circuit City store to pick it up. Personally, I think that process kind of defeats the purpose of the Internet. But consumers clearly like the ability to shop online -- sales at Amazon.com (NASDAQ:AMZN), Overstock.com (NASDAQ:OSTK), Bluefly (NASDAQ:BFLY), and numerous other online-only retailers have only risen over the past few years. With Circuit City, consumers can do their shopping online, then get the immediate gratification of collecting their treasures the same day they click the "buy" button.
What management does:
While all that sounds good for Circuit City, I have to point out that it's not yet yielding any great improvement for the firm's margins. In the last 18 months, Circuit City's gross, operating, and net margins have risen, but by amounts so small as to be almost unnoticeable.
|
Margins % |
8/04 |
11/04 |
2/05 |
5/05 |
8/05 |
11/05 |
|---|---|---|---|---|---|---|
|
Gross |
23.9 |
24.6 |
24.6 |
24.8 |
24.6 |
24.3 |
|
Op. |
1.5 |
1.8 |
1.5 |
1.3 |
1.4 |
1.7 |
|
Net |
0.7 |
0.6 |
0.6 |
0.5 |
0.6 |
0.8 |
One Fool says:
In the December sales update, Circuit City also noted that it aims to achieve operating margins of 1.6% to 2% in fiscal 2006. If it hits the top of that range, it would achieve its best operating margin since 2001. To determine the likelihood of success, investors should watch three lines in particular on the income statement: sales, cost of goods sold (COGS), and selling, general, and administrative expenses (SG&A). Over the last six months, Circuit City grew its sales 11% year over year, but the cost of those sales rose 13%. The firm's efforts to control SG&A, which only grew 3%, saved its margins.
Competitors:
- Best Buy
- Dell (NASDAQ:DELL)
- Wal-Mart (NYSE:WMT)
Best Buy, Amazon.com, and Dell are Motley Fool Stock Advisor picks, while Dell does double duty as aMotley Fool Inside Valueselection. Whatever your investing style, the Fool has a newsletter for you.
Fool contributor Rich Smith owns shares of Dell, but of no other company named above. The Fool has a disclosure policy.
