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Best Buy, Circuit City Battle Tough Quarter

3/07/2003 01:27:00 PM Eastern

New York - A weak economy, war-worries, and an exceptionally promotional holiday period took their toll on the industry's two largest retail chains, Best Buy and Circuit City, which reported soft same-store sales for their just-ended fiscal fourth quarters.

At Best Buy, companywide comps slipped 0.2 percent for the three months ended March 1, while total revenue rose 9 percent to $7.6 billion. For Circuit City, comps fell 6 percent for the quarter ended Feb. 28 against a 5 percent decline in net revenue to $3.2 billion.

Full-year comps rose 1.4 percent, and total sales rose 16 percent to $22.7 billion for Best Buy, while Circuit City comps grew 4 percent and net rose 5 percent to $9.96 billion for its fiscal year.

Best Buy CEO Brad Anderson blamed "the challenging economic and political environment [for] constrained revenue growth" during the quarter, but said the company continued to effectively manage its promotional activity and expenses as consumers pulled back on spending.

Circuit City CEO Alan McCollough attributed his company's fourth quarter performance to "the soft economy and continued declines in average retails across many product categories." He also cited a 10 percent slide in comp store sales in February, which was triggered by "concerns over the economy and national security" and severe weather over the Presidents' Day weekend.

McCollough also defended his controversial decision to end commissioned sales and lay off its 3,900 highest paid - and therefore most effective - sales associates. "We saw no apparent disruption in the sales pace immediately following the implementation of the compensation change," he said, "reinforcing our belief that this move was the right one. We believe that our February results illustrate that drivers for success are our state-of-the-art training programs and the personal commitment that our store associates make to customer service."

On the product front, both companies reported strength in LCD and plasma displays, which, said Best Buy, emerged as "high-volume products" during the quarter. Other pockets of growth included DVD movies and video game software, while both chains cited weak sales of personal computers.

Broken out by division, net sales at Best Buy's flagship stores grew 11 percent to $6.4 billion for the quarter while comps grew 1.3 percent. Total sales at Musicland, which closed 128 stores during the quarter, fell 15 percent to $580 million while comps dropped 13.3 percent, owing to slow mall traffic, soft CD sales and increased competition. High-end A/V specialist Magnolia Hi-Fi enjoyed a 28 percent hike in fourth quarter revenue to $40 million, while comps declined by the low single digits.

Propelled by new store openings, sales at the company's Canadian operations, comprised of Future Shop and Best Buy stores, grew 23 percent to $580 million during the quarter, while comps edged up 0.6 percent.