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Circuit City (CC)
Circuit City's Profits Plummet as Rivals' Rise
For the fourth quarter in a row, Circuit City has failed to live up to analyst's expectations, by missing their estimates yet again. Circuit City is currently the second largest consumer-electronics chain after Best Buy (BBY: Charts, News, Offers), and during the course of this calendar year it has been making efforts to decrease the competition it feels from Best Buy and other rivals, and attempting to increase their market share. As this report indicates, however, so far they've been unsuccessful in achieving these goals. Will Circuit City succeed in turning their company around, or will their profits continue to decline as their competitors' profits grow and grow?
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Without a doubt, Circuit City's latest report is full of disappointing news. Analysts were expecting a loss of 12 cents a share, but Circuit City reported much higher losses of 38 cents a share, for a total loss of $62.8 million. Their same store sales fell 8 percent. Sales of many popular electronic items fell as well, including tube televisions, video cameras, and digital music players, and the increased sales of flat-screen televisions and laptops were not enough to make up for those losses. Since this morning's announcement, shares of Circuit City have plummeted over 19%.
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Circuit City has been struggling to deal with competition for many years, but last year they really began to feel the heat from others besides its traditional competitors. Both Circuit City and Best Buy felt major pressure from Wal-Mart's (WMT: Charts, News, Offers) competitive pricing and increased availability of electronic products. At the end of last year, both companies reported earnings that were below expectations. Since then, however, Best Buy has recovered and has gotten itself back on track, while Circuit City seems to be stuck in a rut. Earlier this week, Best Buy managed to beat estimates by reporting quarterly profits of $250 million, and they raised their yearly profit forecast as well. Circuit City's report is even more frustrating when viewed in the light of Best Buy's good news.
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Circuit City refuses to give up hope, however, and is predicting good news for their financial future. At this point, they are forecasting that their losses will continue through the third quarter, but that they will turn a profit in the fourth quarter which includes holiday sales. They are also confident that their efforts in restructuring the company will pay off. Their chief executive has stated that they have been working hard to "increase productivity and to improve the customer experience." He points out that changes often have a negative effect for a while, but remains confident that their changes should start to help them in the future. In addition to these efforts, Circuit City has hired a new CFO, who has previously worked at Best Buy, and perhaps they hope he will bring some of Best Buy's success to this struggling company. It seems that Circuit City first needs to focus on the internal operation of their business, and hopefully then they will be able to tackle the more complex problems of overcoming their competitors. Once Circuit City reports a profit and demonstrates they can succeed, it will hopefully confirm that they are on the right track to finally shaking off these constant repeated months of failure.
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