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Still Struggling

Best Buy's profits shrink while Circuit City's losses widen

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America's two largest electronics retailers — Best Buy (Minneapolis) and Circuit City (Richmond, Va.) — continue to struggle financially in the face of a sluggish economy.

Best Buy, the largest electronics chain, reported earnings from continuing operations of $69 million for the quarter ended May 31, down from $79 million a year earlier. But company officials see signals of better times ahead.

“Earnings from continuing operations came in above our expectations, after the war in Iraq ended and increased consumer confidence during the quarter sent more shoppers to our stores and to our web sites,” says Brad Anderson, vice chairman and ceo. “The mid-single-digit gain in comparable store sales we enjoyed in May boosts our confidence in the sales outlook for our fiscal second quarter and for the rest of our fiscal year.”

Best Buy's revenue from continuing operations for the first quarter increased 11 percent to $4.67 billion, driven by the addition of 79 new stores in the past 12 months and a same-store sales gain of 2.2 percent.

Circuit City, the No. 2 U.S. electronics chain, posted a wider loss for the first quarter and reiterated that it was looking at all viable options for its money-losing credit card business. The retailer also said its results were hurt by lower sales and higher costs for store remodelings and relocations. Total sales declined 9 percent, to $1.93 billion, and revenues from stores open at least a year fell 10 percent in the quarter from a year earlier.

Circuit City's first-quarter loss widened to $43.9 million, from $1.3 million a year ago. The year ago loss excluded $29.2 million in earnings from its stake in auto retailer CarMax, which was spun off in October 2002.

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Circuit City recorded a pretax loss of $22.1 million from its finance operation compared with a profit of $20.4 million in the year ago period. The company cited higher expenses from its finance operation, which has struggled as customer default rates have increased in a weak economy.

Alan McCollough, Circuit City's ceo, said the credit card business review was in recognition of the fact that the unit's “performance is not where we would like it to be.” He told a conference call with analysts that personal bankruptcies “seemed be continuing to run at record levels.”

Selling the business would let Circuit City focus on its core retail business, analysts say. Circuit City manages a portfolio of store-brand credit cards, as well as Visa and MasterCard cards. The chain, along with other retailers, has struggled with rising credit card defaults.

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