Sector Snap: Electronics Retailers Fall

Circuit City Stores reported a fourth-quarter profit, rather than an expected loss, as cost cutting offset declining sales.

It was the first time the Richmond, Va.-based company has reported a quarterly profit since the second quarter of 2007. Circuit City and other electronics retailers have suffered as consumers cut back on discretionary spending and competition in the sector increases. Circuit City is also facing investor pressure to improve its operations.

Analysts expressed caution about the results, however.

Banc of America Securities analyst David Strasser, who rates Circuit City "Neutral," said in a note to investors on Wednesday that results were "weak, but could have been worse," and were helped by aggressive cost cutting.

"The beat is off of very low expectations and should be taken with a grain of salt," Strasser said. "Upside came from SG&A (selling, general and administrative expense) cuts, which we believe should be reevaluated, as they really need to focus on reigniting top-line sales."

RBC Capital Markets analyst Scot Ciccarelli said the best results came from Circuit City's international segment, which it is trying to sell. Domestic same-store sales fell 11.3 percent while international same-store sales rose 8.6 percent.

"The company needs to show better sales stability, especially in the U.S., or the cost cuts simply won't be able to keep up with the sales degradation," he wrote. "We continue to avoid this stock at these levels."

Same-store sales is a key indicator of retailer performance since it measures growth at existing stores rather than newly opened ones.

Circuit City shares fell 14 cents, or 3.1 percent, to $4.39 during midday trading. The stock has traded between $3.44 and $19.12 during the past 52 weeks.