CC: Circuit City Gives Up
Early in April we noted the disparity between the market reactions to sales reports from Circuit City (CC) and Best Buy (BBY). We speculated that the market favored Circuit City’s poor performance because the worst appeared over and management was getting down to nuts and bolts. If that was indeed the impetus for the positive reaction, it proved premature.
Circuit City issued a press release yesterday adjusting its previously reported numbers for some accounting matters. Buried in the press release was this revision to the previously issued guidance:
For the month of April, the company experienced substantially below-plan sales, primarily related to the large flat panel and projection television categories. Due to this trend, the company now expects a loss from continuing operations before income taxes of $80 million to $90 million for the first quarter of fiscal 2008. In light of uncertainties in the current operating environment, the company is withdrawing its previously issued guidance for the first half of fiscal year 2008.
Assuming business trends improve and the transformation efforts are effective, the company forecasts fiscal 2008 earnings from continuing operations before income taxes (EBT) as a percentage of consolidated net sales at the low end of the company’s previously guided range of 1.4 percent to 1.8 percent. The company will continue to monitor general business trends as well as the effectiveness of its transformation efforts and expects to provide an updated fiscal 2008 forecast when it releases results for the first quarter of fiscal 2008 in June.
So the old “worst case” is the new “best case.” The question now becomes whether the weakness is indeed specific to Circuit City. Recall that Radio Shack’s (RSH) positive move on Monday resulted from better than expected cost savings. The revenue performance was atrocious. Circuit City makes for a second awful report. If we see the same from Best Buy, those who have long been calling the death of the American Consumer may finally be proved right.
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“death of the American Consumer”? Read Lou Dobbs’ book ‘War on the Middle Class’. The American Consumer has not committed suicide yet, but if Big Government and Big Business continues their vampiric attitude toward the productive members of our society, we might just reach over and pull the plug ourselves.