Updated from 8:23 a.m. EDT

While

Circuit City

(CC) - Get Report

is slowly maneuvering to catch up with main rival

Best Buy

(BBY) - Get Report

, it's probably safe to say the electronics retailer is not there yet.

However, despite posting its second first-quarter loss in a row, the latest quarter's loss was narrower than last year's as margins held up -- despite a price war with Best Buy -- and sales expanded.

"We have a long way to go before we will be satisfied," Circuit City said on a postearnings conference call with analysts. But, "We are beginning to see the signs of progress."

Circuit City's loss for the quarter ended May 31 narrowed to $5.9 million, or 3 cents a share, from $46.7 million, or 23 cents a share, last year. Sales rose 6.9% to $2.07 billion on a 6.4% rise in comparable-store merchandise. The company had said on June 4 that video merchandise sales boosted total quarterly sales and made up 42% of overall revenue.

Analysts surveyed by Thomson First Call had been forecasting a loss of 7 cents a share on sales of $2.05 billion in the latest quarter.

Shares of Circuit City closed Tuesday down 32 cents, or 2.5%, at $12.61.

Gross profit margin was 23.2% in both quarters, as service efficiencies and the acquisition of Canadian Radio Shack operator InterTAN offset discounting in several categories.

The company also cited too many promotions for producing flat gross profit margin results. "The quality of performance is not what it needs to be," the company said on the call. "It's not just what price do we have to sell for, because we have to compete in the marketplace every day."

"It's assortment ratio for stores, making sure we do a better job with forecasting than we have before. The fact that we have to compete is a given, which means we better do hard work in other areas we can control," Circuit City said.

Print advertising competition in the first quarter was especially aggressive, the company said, with computer and television promotions taking up the most space. But Circuit City stressed its ability to compete. "We're going to compete. We have to compete, and in doing that, it's our responsibility to turn over every rock we can to contribute to the bottom line," it said.

The company said its strategy has been to sell large-ticket items, such as a big screen TV, and then give customers discounts on other complementary products, such as audio/video products or Direct TV.

Sales associates are "closing more sales, and they're selling more per customer," the company said.

Selling, general and administrative expenses in the quarter were 23.6% of sales in the latest quarter, compared to 25.6% a year ago, thanks to the closing of 19 stores in February 2004 and lower relocation and remodeling expenses.

"We believe that our store operations team achieved meaningful improvements in execution during the first quarter, although we also recognize that the first-quarter comparable-store sales increase came against a weak sales performance in last year's first quarter," the company said.

Circuit City said the 39 stores it has relocated in the past three years have, on average, shown a 27-percentage-point improvement in sales over older stores.

Total capital expenditure spending in 2005 will be $165 million, excluding InterTAN costs. Of that amount, $52 million will be for superstore remodels.

Best Buy, which releases earnings Wednesday, said on June 3 that first-quarter sales increased 17% to $5.47 billion with same-store sales up 8.3%.