News

Is retailing headed up or down? North America's two largest electronics retailers have reported vastly different results for the second quarter.

Best Buy, the region's largest retailer, is riding an updraft. The electronics giant doubled its net earnings in the second fiscal quarter, reaching a total of $139 million, a huge leap from the $62 million reported for the same period in 2002. Earnings from continuing operations grew more than 75%, to $140 million, up from $79 million in the second quarter last year.

The Eden Prairie, MN–based retail chain enjoyed 17% revenue growth in the second quarter, to $5.4 billion, a nice rise from last year's $4.6 billion, with comparable store sales up 7.5%. US Best Buy stores posted 15% sales growth in the second quarter, for a total of $4.9 billion, up from $4.3 billion in the same period a year ago. Best Buy's international operations (Canadian Future Shop stores) grew 44%, to $486 million, up from $338 million in the same period a year ago, with comparable store sales up 4.1%. Gross profits increased slightly from 25.3% of revenue last year to 25.4% for the second quarter of 2003, with Best Buy-branded stores attaining 25.6% gross profit. Part of the gain in efficiency was attributed to an 8% reduction in the company's workforce.

Best Buy reported operating income of $230 million for the second quarter, compared with $130 million in the same period a year ago, the increase largely attributable to the addition of 13 Best Buy stores and 6 Future Shop stores within the past year. Revenue for the first half of 2003 was up 14%, reaching $10.1 billion, a jump from last year's $8.8 billion. For the first half, Best Buy reported net earnings of $114 million. During the same period in 2002, the company suffered a net loss of $271 million.

The picture isn't as bright for Richmond, VA–based Circuit City. The nation's second largest electronics retailer has been hampered by slow store traffic, declines in margins, and continuing losses from its bankcard operations. For the second quarter of 2003, ended August 31, the company reported a $124.2 million loss from continuing operations, more than ten times the $11.2 million loss posted in the same period last year. The net loss reflects pretax charges of $148 million, the cost of Circuit City's continuing interest in its bankcard portfolio, store remodeling expenses of $18.2 million, and store relocation costs of $4 million. For the quarter, comparable store sales were down 5%, with sales totals down 3% to $2.16 billion. In the second quarter of 2002, Circuit City posted total sales of $2.22 billion.

Chairman and CEO Alan McCollough predicted an upswing in business as the winter holiday season approaches. Typically the best time of year for electronics stores, the next few months should see growth in sales of all home theater–related products, especially flat-panel televisions, which continue to get better and cheaper as manufacturers ramp up production. Circuit City could end the year on a more positive note, after completing the sale of its bankcard operations. Announced in August, the sale could lift a continuing burden from the company's bottom line.