Through TheFLY's Eyes: Circuit City

from Joseph Lazzaro of Theflyonthewall.com


















Circuit City Misses, And Wall Street Hits CC

Circuit City (NYSE: CC), the nation’s second-largest consumer electronics chain, surprised Wall Street with a Q3 loss, and Wall Street was not amused.

Circuit City posted a Q3 EPS loss of -9 cents, well below the Reuters consensus estimate of 7c. CC also lowered 2007 guidanace, saying 2007 sales would rise 8%-9%, down from earlier guidance of a 9%-11% gain, due to continued gross margin pressure. The company cited price war-inspired price cuts as contributing to margin pressures

Wall Street promptly pummeled the stock, sending Circuit City shares more than 18% lower, for a decline of $4.53 to $18.52 on Tuesday at mid-day.

Analysts said the market was reacting not only to Circuity City's disappointing revenue stats, but its lowered guidance, and the "barometer weight" of the that guidance. "Barometer weight" is Wall Street-speak for a company's sector and broader market implications. Because Circuit City is national in scope, with broad demographics, its revenue/EPS stats are often used by the Street to detect clues regarding the health of consumer spending and the retail sector.

And right now, those stats are suggesting that consumer spending is moderating, with growth slowing, hence Tuesday' sell-off in CC. Moreover, it was not surprising that the market moved lower at mid-day following the news, as welll, with the Dow down -20 points, and the Nasdaq down -18 points at mid-day.