Circuit City (NYSE:CC) shares got electrified Wednesday, after the retailer gave some cheerful news about the coming year. But maybe it's time to wonder whether things are getting a little too hot for this electronics retailer.
Circuit City offered up some positive forecasts for the upcoming quarter, which resulted in the retailer's shares gaining 6% at one point in the day's trading, despite the fact that most stocks are seeing red today. The company said it expects a 7% to 11% increase in sales this year, with same-store sales up 5% to 7%. Circuit City also said it expects its first-quarter profits to break even (it reported a $0.07-per-share loss in last year's first quarter), and it forecasts improvements in gross margins as the year progresses.
Some of the catalysts for the strong sales trends cited in Circuit City's press release include the popularity of flat-panel TVs, notebook computers, digital imaging products, and portable music players -- though of course the forecast depends on these trends continuing. Incidentally, the press release was posted to the wires in advance of an analysts' conference that the company is hosting today.
This is a retailer that has had a tough road competing with all kinds of electronics outfits, not least of which is Best Buy (NYSE:BBY), an extremely formidable rival (some argue Best Buy's still the best). It's in good company, too -- Costco (NASDAQ:COST), Wal-Mart (NYSE:WMT), and RadioShack (NYSE:RSH) (that last one being a struggler, to be sure) are among the many companies that provide hot consumer electronics.
Despite the good news, it's not like some investors haven't already bet on a Circuit City turnaround -- Fool contributor Stephen Simpson recently pointed out that there's already been a lot of optimism bubbling up in Circuit City's stock price, which has doubled since its lows in September.
A quick glance at Circuit City's trailing-12-month P/E of 39 certainly gives the impression that investors have already built a lot of optimism into this one. After all, Circuit City still has formidable and often innovative competition to contend with. Meanwhile, the argument that the consumer might get a bit skittish over the next couple months -- worrying about pocketbook pinches like high gas prices and rising interest rates -- certainly isn't an idle concern. For now, maybe prudent investors considering this stock should see whether things cool off before stepping into the City.
For recent Foolish coverage of electronics retailers, see the following articles:
- Looks like the power's back on at Circuit City.
- One Fool says Best Buy's still the best.
- Maybe RadioShack's a little ramshackle.
Best Buy and Costco are Motley Fool Stock Advisor recommendations. Wal-Mart is a Motley Fool Inside Value recommendation. Whatever your investing style, the Fool has a newsletter for you.
Alyce Lomax does not own shares of any of the companies mentioned.
