Electronic Retailers Looking at a Blighted Christmas

Best BuyBBY and Circuit CityCC both beat third-quarter earnings expectations on Tuesday, but that doesn't mean their holidays will be happy.

Best Buy lowered its guidance for its fiscal fourth quarter, which began Dec. 1, by 5 cents per share. Circuit City declined to provide any kind of projections at all for how it would fare in its fourth quarter.

The soft economy, a dearth of must-have electronics products and increased competition from discounters such as TargetTGT and Wal-MartWMT threaten to spoil the holidays for both companies, warned Scot Ciccarelli, an analyst with Gerard Klauer Mattison.

"I think it's going be tough for both of them," Ciccarelli said. "It's a little more onerous for Circuit City. Providing no guidance for the fourth quarter is usually not a good sign." Gerard Klauer Mattison does not have any investment banking business with either company.

The disappointing outlooks for the electronics retailers come amid a generally downbeat holiday shopping season to date. A survey by ShopperTrak RCT on Monday, for instance, projected that retail sales would fall 5.4% this month from last December. Meanwhile, Wal-Mart, Target and Federated Department StoresFD have reported weekly sales in December that are at or below the low end of their projections.

Best Buy, at least, posted fairly strong third-quarter numbers. The Minneapolis-based retailer earned $85 million, or 26 cents a share, on $5.5 billion in revenue. Last year, Best Buy earned $80 million, or 25 cents a share, on $4.8 billion in revenue.

The company's gross profit margin held steady at 21.6% of sales, while its sales, general and administrative expenses increased slightly to 19% of sales, from 18.9% last year.

But those numbers hid more developments for Best Buy. The company's Musicland division, which it acquired last year, continues to struggle. While comparable-store sales in the third quarter for the entire company declined by 0.4%, same-store sales at Musicland stores dropped a whopping 11.5%. Same-store sales compare results from outlets open more than one year.