Hot on the heels of a disappointing report from Best Buy (NASDAQ:BBY), fellow electronics big-boxer CircuitCity (NYSE:CC) reports its fiscal Q3 2007 on Tuesday.

What analysts say:

  • Buy, sell, or waffle? Twenty-eight analysts monitor Circuit City. A full dozen rate it a buy, 14 more a hold, and two a sell.
  • Revenues. On average, analysts expect Circuit City to report $3.1 billion in sales, a 7% improvement over last year.
  • Earnings. Profits are predicted to rise one penny to $0.07 per share.

What management says:
 Last quarter, CEO Philip Schoonover practically crowed over the retailer's success as Circuit City "delivered strong growth in net sales, stable gross margins and expense leverage." Looking forward, Schoonover predicted that in the third and fourth quarters, the firm would continue to emphasize the sale of home entertainment systems, launch its own answer to Best Buy's Geek Squad (marked as "firedog"), increase capital spending modestly, and reduce inventories by $50 million to $100 million in value. If successful with all these initiatives, Circuit City expects to achieve about 8% same-store sales growth and 10% overall sales growth this year.

What management does:
Sales growth looks key to Schoonover's master plan. Compared with 18 months ago, Circuit City's gross margins are running about 50 basis points lower. Thus, raising revenues looks like the firm's best chance of continuing to reduce operating costs as a percentage of sales (as it did last quarter), so as to continue the strong expansion of its still razor-thin operating and net margins.

Margins %

5/05

8/05

11/05

2/06

5/06

8/06

Gross

24.8

24.6

24.3

24.4

24.3

24.3

Op.

1.3

1.2

1.5

2.1

2.3

2.3

Net

0.5

0.6

0.8

1.2

1.3

1.4
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:
If you follow Circuit City, you've probably seen fellow Fool Rick Munarriz's write-up of the company's firedog service launch, and read why he thinks it holds so much promise for Circuit City (and if you haven't yet, here's another chance to read it). For my part, I'm more ambivalent on the service. On the one hand, I think it offers the company a chance to bring in higher-margin revenue than you usually get playing the notoriously thin-margin retail game. On the other hand, however, I see better prospects for using leverage -- the leverage that Schoonover says he'll be seeking going forward -- by boosting sales within the four walls of the firm's big-box stores.

There's only so much time in the day to work, and only two hands available, for each technician on a firedog team. That tends to put a cap on the profitability of such service businesses. Where leverage really works, it seems to me, is where you find a way to get each employee standing at a register to ring up increasingly large amounts of sales over the course of the workday. Going forward, I'm personally not investing a whole lot of hope that firedog, per se, will pull Circuit City's margins up to the level of its archrival, Best Buy. I'd look instead for signs that the availability of firedog as an added convenience will: (1) prevent Best Buy from siphoning off customers who desire that convenience, and (2) encourage more of the kinds of high-tech, home-entertainment-related purchases that can build leverage within Circuit City's stores.

Competitors:

  • Dell (NASDAQ:DELL)
  • RadioShack (NYSE:RSH)
  • REX Stores (NYSE:RSC)
  • Tweeter (NASDAQ:TWTR)

What did we expect to see from Circuit City last quarter, and what did we get? Find out in:

Fool contributorRich Smithdoes not own shares of any company named above. Dell and Best Buy areStock Advisorpicks. Dell is also an Inside Value recommendation. The Fool's disclosure policy is broadcast in HD.