No Spark in Sales of Electronics

Best Buy Co. cut its profit forecast Tuesday because of disappointing holiday sales at its music stores, and Circuit City Stores Inc. had a third-quarter loss as it cut prices and sold fewer higher-profit items.

Best Buy, the largest U.S. electronics retailer, said profit this quarter would be 5 cents lower than its previous estimate, sending its shares down 5.5%. Shares of smaller rival Circuit City fell 11%.

Declining music sales at Best Buy’s mall-based stores, including Sam Goody, will hurt profit this quarter. Sales of satellite-television systems and wireless telephones slowed at Circuit City. Both retailers are cutting prices and offering interest-free financing to keep customers from fleeing to discounters such as Wal-Mart Stores Inc. and Target Corp.

“People are buying, but they are buying the bargains,” said Brian Bruce of PanAgora Asset Management Investors.

Best Buy’s third-quarter net income rose to $85 million, or 26 cents a share, as sales increased 16% to $5.5 billion, the company said. Circuit City had a net loss of $17.8 million, or 9 cents, compared with a profit of $27.7 million, or 10 cents, a year earlier. Sales gained 7% to $2.42 billion.

Shares of Eden Prairie, Minn.-based Best Buy fell $1.40 to $24 in New York Stock Exchange trading. They have dropped 52% this year. Circuit City, based in Richmond, Va., fell 92 cents to $7.27, also on the NYSE. They had fallen 58% since last December.

Sales at Best Buy stores open at least 14 months fell 0.4% in the third quarter ended Nov. 30, led by a 12% decline at Sam Goody and other mall-based stores. Net income was $80 million, or 25 cents, in the year-earlier quarter.

Best Buy reduced its fourth-quarter forecast to $1 to $1.10 a share. Profit will be hurt by an $80-million to $85-million operating loss at its Musicland stores unit, which includes the Sam Goody music and Suncoast video chains, the company said. Best Buy had net income of $350 million, or $1.08, in the year-earlier fourth quarter.

Sales at Circuit City stores open at least a year rose 6% from the year-earlier third quarter. The retailer had costs to remodel and relocate stores, and said remodeling costs for the year will be less than the company’s estimate of 18 cents a share. Circuit City didn’t provide a forecast for this quarter.