No you can't. Circuit City doesn't have any sort of game plan at the moment, and it's sinking fast. The company's stock is priced at $2.31 as I write this. The goofy Blockbuster Inc. (NYSE: BBI) transaction is gone (for now, at least...there are reports saying that it could be resurrected at a later date, although I don't buy that it will happen at all). It isn't competing effectively against Best Buy Co., Inc. (NYSE: BBY) and Wal-Mart Stores, Inc. (NYSE: WMT). In short, Circuit City is a Titanic-like electronics retailer that doesn't know how to keep its ship from hitting icebergs.
So this resignation isn't surprising. Of course, is there any way to make money off the stock? I do believe there is downside to come on the share price, which would therefore imply that shorting it could work out. Alas, I wouldn't recommend it. You just know that some company and/or financial entity out there might come in at any point and make a bid, and the shares could skyrocket. Although the Blockbuster deal didn't make sense, it doesn't mean that there isn't some transaction scheme out there that would be logical. Circuit City is a stock merely to watch out of curiosity, it's not one to do anything about.
Disclosure: I don't own any company mentioned here; positions can change at any time.
Ever since Circuit City Stores (NYSE: CC) CEO Philip J. Schoonover sliced 3,400 sales people in March 2007 to save money, I have questioned the savvy of its management. That's because many of those fired sales people took their customers over to Best Buy (NYSE: BBY). As its stock lost 86% of its value, I was surprised that anyone would make a bid for it.
Yet Blockbuster (NYSE: BBI), the struggling video store chain, decided to buy. I don't know what got into Blockbuster's head to make it think that combining two struggling companies would make an agile competitor. The Richmond Times reports that it wanted to create a one-stop shop for movies, games, and electronic equipment. But that dream died when Blockbuster pulled its $1.3 billion offer after reviewing Circuit City's books.
Carl Icahn has said he would buy Circuit City. But it's losing money -- $164.8 million, or $1 a share, in its fiscal first quarter. This was $100 million more than its Q1 2007 loss. And Blockbuster's conclusion after a closer look at its financial statements does not bode well for Circuit City's future. Circuit City stock is down 7.8% in pre-market. Let's see whether any new bidders emerge.
Best Buy Inc.'s (NYSE: BBY) Chief Operating Officer made a pretty strong pledge this week. Brian Dunn suggested that the largest consumer electronics retailer in the U.S. would double its sales to $80 billion within five years. This has an eerie air about it, as it sounds much like Dell, Inc. (NASDAQ: DELL) then-CEO Kevin Rollins many years ago. While Dell's ambitious goal didn't really pan out nearly as nice, Best Buy has a much better proposition to get to its goal.
Dunn's announcement at the retailer's annual shareholder's meeting this week was backed up by the fact that Best Buy has already doubled in size from 2003 to 2008. Its sales went from $20 billion to $40 billion in that five-year period. Keep in mind that one of Best Buy's chief competitors, Circuit City Stores, Inc. (NYSE: CC), is basically on the ropes hanging on for dear life. Wal-Mart Stores, Inc. (NYSE: WMT) is Best Buy's largest competitor, but it doesn't carry near the breadth of actual consumer electronic products that Best Buy does. This positioning still leaves Best Buy free to navigate to $80 billion by 2013. But, doubling every five years is no easy task, and especially in the consumer spending environment we're in now.
What is fascinating is that Best Buy apparently controls only about 20% of the consumer electronics market, and about 30% of retail PC sales in the U.S. Combine those low numbers with Best Buy's very aggressive international expansion and partnerships and it's easy to see that $80 billion in annual sales is already being attacked. Will it get there? We'll be checking -- all the way to 2013.
hhgregg (NYSE: HGG) is a specialty retailer of consumer electronics, home appliances and related services. The firm operates 97 southeastern and midwestern U.S. stores, under the names hhgregg and Fine Lines. It also operates a retail Web site. Offerings include notebook computers, televisions, DVD recorders, refrigerators, ranges, dishwashers, freezers, washers, dryers and Serta mattresses. Competitors include Best Buy (NYSE: BBY), Circuit City Stores (NYSE: CC) and Wal-Mart (NYSE: WMT).
The company pleased investors earlier in the month, when it reported solid Q4 results and offered FY09 EPS guidance in-line with the consensus Street view. Management attributed success to increased sales of higher-priced video and major appliance products. Plans call for opening 15 to 17 stores, during the new fiscal year.
It is safe to say that the past couple of years have been tough on shareholders of Circuit City (NYSE: CC), and today is no different as the company posted a large loss for its fiscal first quarter. Shares of the electronics retailer are down 7.5% after the company posted a loss of $1 a share for its most recent quarter.
The company stated that the main reason for its poor performance last quarter was weak sales performance in the company's established stores. This really should not come as a big surprise to us since we have been well aware of the company's faltering sales over the past couple of years. On the whole, same-store sales dropped by 11.3%, and continues to affirm the belief that Circuit City definitely has its work cut out for it if it ever wants to start regaining its lost market share.
The total loss on the quarter totaled $164.8 million, about triple the $54.6 million loss it recorded for the same period last year. I wish I could say that things are looking brighter down the road but that is just not the case, as the retailer is expected to post another large loss for its second quarter. Analysts had been expecting to see a loss of $143.4 million for the current quarter, but the company issued weaker guidance, stating that it expects to see a loss of somewhere between $170 and $185 million.
The Wall Street Journalreports that Best Buy (NASDAQ: BBY) is test piloting the sale of used video games at its Canadian stores, with an eye toward expanding the program into the United States. While the company says it's too early to say whether the plan will take off, Best Buy's head of international relations said on a conference call that "We're very, very, very hopeful that this will be another avenue of increasing our relationship with the consumer generally."
What a nice way of saying "making more money." The used game business carries substantially better margins than retailing new games, and the frequency of trade-ins reduces inventory costs. Right now the leader in used games is GameStop (NYSE: GME), but you have to think a big push from Best Buy could take some market share in this profitable category. Alternative GameStop's small size and more knowledgeable staff could make it more appealing to consumers than Best Buy -- the two stores have locations in many of the same malls.
Even after its recent price decline, GameStop investors should be taking a hard look at the durability of the company's competitive advantage. The company has so far done exceptionally well competing with big box retailers, a testament to tremendous management and a strong concept. But it's a battle that's likely to continue and, looking further into the future, you have to wonder whether higher-quality digital delivery of games could hurt the company.
In the last few weeks, I've become more and more critical about the British music company EMI Group, especially with the coming release of Coldplay's fourth album Viva la Vida or Death and All His Friends. Numerous reports and rumors are circulating that the company is betting all of its yearly profits on the album's success, and this only fuels my fears about the success that the album would enjoy. It was never in doubt that the album would be huge, but with the band hoping to shake the image of a band that earns more profits for label management, the rumors worked against that.
In any case, I finally bought the album this morning from Best Buy Co., Inc. (NYSE: BBY) and was slightly surprised to see that the retail chain was carrying a very limited number of vinyl copies. Naturally, and possibly without thinking of my Apple Inc. (NASDAQ: AAPL) iPod, I splurged for this version of the album. Regardless, when I finally opened the shrinkwrap I found another surprise -- a CD copy packaged with the vinyl. Clearly, EMI and American branch Capitol Records are aware that a vinyl copy hardly transfers to an iPod easily.
The label may not like the fact that I will burn that CD copy to my iPod because of lingering fears that somehow that will result in illegal sharing, but it does say something possibly revealing about EMI. Since Guy Hands and private equity firm Terra Firma bought out the music company last September, the company has taken steps that some view as not music company practices, and lost many big artists in the mean time. But if a consumer can purchase one copy of an album from the music giant and receive two, then the company might not be in such trouble.
That is the very dynamic that the music industry needed to show: that it cared about the consumer. Digital growth in the past year has indicated that it did, and while a vinyl and CD copy might seem against that trend, it shows that the industry knows where consumers are listening to music the most: through portable devices.
On Tuesday Best Buy Inc. (NYSE: BBY) reported that its first-quarter profits fell due to economic conditions, and furniture maker La-Z-Boy Inc. (NYSE: LZB) said it swung to a fiscal fourth-quarter loss due to lower retail sales.
Best Buy's first-quarter profits dropped 7% from a year ago to $179 million, or 43 cents per share. Analysts polled by Thomson Financial had expected a profit of 37 cents per share.
Richfield-based Best Buy said revenue jumped 13% to $8.99 billion as customers began spending their government stimulus checks and also took advantage of low-interest financing. Analysts had expected sales of $8.57 billion for the quarter that ended on May 31.
Same-store sales rose 3.7%, but Best Buy warned of a "volatile" year ahead.
The share price fell 5.3% Tuesday to close at $43.46. Shares have risen 10.2% in the past three months, but are down 9% from a year ago.
Any relief we would have been seen in financial stocks was knocked down by a solid PPI reading and by more worries about banking stocks. We also saw a report from The Federal Reserve reporting that industrial productions fell by -0.2% in May, and plants were running at the lowest capacity in almost three years at 79.4%. As you'd expect, we also saw a decline of -3.3% in new housing starts to an annual rate of 975,000, and that represented more than a 10-year low. These are the unofficial closing bell levels for major US index levels:
Apple Inc. (NASDAQ: AAPL) shares are trading higher today after Best Buy (NYSE: BBY) reported a first-quarter profit that beat analyst expectations, saying that its expansion of AAPL in-store shops boosted revenue for the quarter. If you think that Apple won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on the stock.
After hitting a one-year low of $111.62 in August, the stock hit a one-year high of $202.96 in December. Apple opened this morning at $178.10. So far today the stock has hit a low of $177.41 and a high of $181.27. As of 12:15, AAPL is trading at $180.50, up $3.66 (2.0%). The chart for AAPL looks bullish but deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $115 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just four months as long as AAPL is above $115 at October expiration. Apple would have to fall by more than 36% before we would start to lose money. Learn more about this type of trade here.
U.S. stock futures rose early Tuesday as the Street awaited earnings from Goldman Sachs that has tended to beat analyst estimates in the past. In light of the turmoil in financials, this would be a welcome treat. Also this morning, several economic reports are due about inflation, housing and industrial production. Given the Federal Reserve meeting next week, investors will keep a close watch on the inflation data.
On Monday, U.S. stocks ended mixed as investors continued to worry about the economy and watch oil carefully. Downgrades of several Dow industrials stocks such as Verizon, AT&T and GE, caused the index to finish the day 38 points, or 0.31%, lower while the S&P 500 ended up a fraction of a point, or 0.01%, and Nasdaq Composite added 20 points, or 0.83%, getting a boost from possible approval of satellite radio merger.
A busy morning full of economic readings is ahead of us: At 8:30 a.m. EDT, May building permits and housing starts figures will be released. The recent declining trend is not expected to reverse course yet, despite some recent indication the housing market may begin to show a bottom. Both figures are estimated to drop further. At the same time, a measure of inflation with prices at the wholesale level will be reported. May Producer Price Index is expected to rise 1%, while core PPI is expected to show an increase of 0.2% in May. Then, at 9:15, May capacity utilization and industrial production numbers are also due out with the latter actually expected to show a slight growth in May.
These will all be material for the Federal Reserve decision next week. And while many are anticipating a rate hike, or a series of hikes starting in August, and have already priced these in, both the Wall Street Journal and the Financial Times this morning report that the Fed "mood" doesn't support a rate hike in August, and that the market has been overaggressive with its expectations of how soon and how many hikes the Fed will use to curb inflation. No doubt these reports have contributed to this morning's more bullish sentiment.
Though the earnings season is winding down, consumer electronics retailers Best Buy Inc. (NYSE: BBY) and Circuit City Stores Inc. (NYSE: CC) are scheduled to report second-quarter results this week. Best Buy profits are expected to be lower, while Circuit City is expected to triple its loss.
Best Buy is expected by analysts surveyed by Thomson Financial to report second-quarter earnings of 36 cents per share, down 7.7% from the same period of last year. The company has provided positive surprises in three of the past four quarters -- by 29.2% in the fourth quarter of 2007.
Based in Richfield, Minn., Best Buy is the largest consumer electronics outlet in the U.S., with about 1,300 stores in the U.S. and Canada providing appliances, gadgets, movies and music, cell phones, and technical services. In the past year, the company's revenues were $40 billion and its net income totaled $1.4 billion. Its long-term EPS growth forecast is 15.3%, which is a little better than the retail industry average. The consensus recommendation of analysts shifted from buy to to hold Best Buy during this past quarter.
The stock is down 13.2% since the beginning of the year, but down only 4.7% from a year ago. It trades at a P/E ratio of 14.65. Shares closed Friday at $45.70.
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U.S. stock futures rose early Tuesday as the Street awaited earnings from Goldman Sachs that has tended to beat analyst estimates in the past. In light of the turmoil in financials, this would be a welcome treat. Also this morning, several economic reports are due about inflation, housing and industrial production. Given the Federal Reserve meeting next week, investors will keep a close watch on the inflation data.
Best Buy is expected by analysts surveyed by Thomson Financial to report second-quarter earnings of 36 cents per share, down 7.7% from the same period of last year. The company has provided .gif){kind=logo}
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