Please ensure Javascript is enabled for purposes of website accessibility

Pondering Circuit City Limits

By Alyce Lomax – Updated Nov 16, 2016 at 2:27PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is it time to consider a move into Circuit City?

Is it time to move into Circuit City (NYSE:CC)? The electronics retailer provided a narrower-than-expected drop in sales last week, but questions remain as it continues to deliver some mixed messages.

On Friday, Circuit City said that its same-store sales for the fourth quarter decreased by 1.8%, a much better result than the 5.7% decrease that analysts were anticipating. Total sales increased 5.3% to $3.47 billion.

The company said that a decrease in wireless sales accounted for 100 basis points of the same-store sales decrease. Meanwhile, digital video accounted for 80 basis points of the drop. Both decreases were due to a business model change, the company said. That's noteworthy, considering how wireless-sales growth has been a strong factor in rival RadioShack's (NYSE:RSH) sales and earnings growth over recent history.

On the other hand, Circuit City highlighted its success in audio products, with portable music players and satellite radio sales delivering double-digit sales growth. It also celebrated triple-digit growth in flat-panel displays, double-digit growth in other digital televisions, and single-digit growth in digital imaging and camcorders.

It's all a bit of a jumble, and most of us know that Circuit City has been struggling in recent months. An unsolicited buyout offer recently came to pass (our own Seth Jayson made comment), and Circuit City discontinued its relationship with online mall Amazon.com (NASDAQ:AMZN). Meanwhile, even with electronics hot-ticket items this past holiday season, Santa seemed to skip Circuit City.

On the other hand, the outlook's been a bit cloudy for electronics retailers in general recently. Best Buy (NYSE:BBY), which, like Circuit City, also pre-announces sales on a regular basis, said last week that earnings may be lower than previously expected.

Electronics retailing is a tough industry, of course, in the competitive sense. Although consumers snap up the gadgets, there's tons of competition -- not just among Circuit City, Best Buy (NYSE:BBY), and RadioShack, but also emanating from Amazon.com, Wal-Mart (NYSE:WMT), and Target (NYSE:TGT).

It wouldn't be surprising if investors saw the better-than-expected sales as a reason to take a second look at Circuit City, and that's a perfectly legitimate response. However, it may very well be easier to argue for taking a position in a traditionally strong performer like Best Buy and ignore short-term machinations. After all, given recent history and continued same-store sales declines, Circuit City still seems to face obstacles in its pursuit of a rosier outlook.

Amazon.com and Best Buy are both Motley Fool Stock Advisor picks. To see what other stocks are marked for greatness by Tom and David Gardner, try the service for six months, risk-free.

Alyce Lomax does not own shares of any of the companies mentioned.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Walmart Stock Quote
Walmart
WMT
$130.06 (-2.50%) $-3.33
Target Corporation Stock Quote
Target Corporation
TGT
$152.61 (-0.23%) $0.35
Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$68.78 (0.31%) $0.21
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$113.78 (-3.01%) $-3.53
RS Legacy Corporation Stock Quote
RS Legacy Corporation
RSHCQ

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.