The No. 2 Consumer-Electronics Chain in America is down 66% in One Year

That wonderful store would be Circuit City Stores Inc. (NYSE:CC). Since the end of June 2006 shares of CC have slid 70% and on Thursday (9/20) shares tanked 18%. How could this be possible? They just reported earnings and missed worse than a juiced-up Sammy Sosa swinging at a wild curve ball.

Circuit City's Q2 2007 revenue was $2.64 billion, down 6% from $2.82 billion in the year-ago period. Sales at same-store sales, slipped nearly 8% when compared in the year-ago period, same-store sales were up 8%. Analysts surveyed by Thomson Financial expected a per-share loss of 12 cents on revenue of $2.78 billion and they missed that horribly by reporting a loss of 38 cents per share, compared to a profit of $10 million, or 6 cents a share, a year ago.

So if Circuit City is No.2, who is No. 1? That would be Best Buy (NYSE:BBY) that just hit a home run last earnings call, reporting an 8.7% profit increase on revenue of $8.75 billion, beating analysts' expectations. To rub salt into Circuit City wounds, Best Buy offered a bullish forecast for the rest of the fiscal year. So this big of a difference between No. 1 and No. 2? Are you telling me everyone is going to Best Buy and not Circuit City? That's like saying more people drink and buy Coke than Pepsi? (They do by the way). How could Circuit City suck this bad? Shares down 70% since last summer, 20% in the last few days alone, come on people, get it together.

It's mind blowing isn't it? I've stated the earnings numbers and all the data, and I'm still left thinking - "How could this billion dollar company screw up so bad and trash it's company shares?" Imagine being a Circuit City investor? There's wrong, then there's Barry Bonds, Mark McGwire, and Sammy Sosa breaking records that haven't been touched since the masters back in the day. I love this before and after picture of Bonds, believe me kids, the Wheaties didn't do that to him, neither did the Flinstone Chewables (10 million strong...)

Just like those famous tainted ball players, Circuit City is in a world of hurt, plagued by doubters, Wall Street analysts are just like Baseball fans -- they can kill a major player overnight in the press. That's what is happening to our darling No. 2 Consumer-Electronics Chain. However, Circuit City is on the same playing field as all of it's competitors, they can recover, save face and become No. 1, even turn a profit. On Wall Street this is possible and if things are looking rosy for Best Buy, well then Circuit City is going to come out just fine.

Are you saying take steroids and buy Circuit City? No to roids and be patient with Circuit City. I find it hard to believe that Circuit City won't recover, unless they are installing tar pits and shooting poison darts at Circuit City patrons, there's nothing to keep consumers from shopping there. Best Buy isn't that much better, most people don't even know the difference once they get inside those stores, who does and more importantly, who cares? No one does. That's why despite all the negative press, you can bet ol' CC will make a comeback. Yes the economy is slowing, we may have a recession, and people will stop spending money on goods that all Consumer-Electronics Chain sell, but they will keep spending money.

With the stock now trading at what it should be, I believe the reward risk ratio is worth it. Will we ever look at Bonds, McGwire, and Sosa the same? Never.

But will we look at Circuit City in favorable light in one year? You bet.

Article written by: Frank Lara Jr.
Article posted on: September 21st, 2007

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