Circuit City's Expensive Inventory

Circuit City (CC) made a small profit in its first fiscal quarter ending May 31, and the market was appropriately unimpressed. Circuit City has been in the midst of a turnaround of sorts, but the stock has risen so far that there is hardly room for good news to take it higher.

The retail chain announced that revenue rose from $2.2 billion a year ago to $2.6 billion in the quarter that just ended. Operating income as $7.8 million or only .3% of sales compared with a small net loss of $19.2 million last year. Comparable store sales were up an impressive 14.6%. The company's cash position dropped from $817 million a year ago to $634 million. Much of the decline came from the company buying its own stock. Gross profit declined very slightly.

Wall Street expects that company to have revenue of $12.6 billion this fiscal year. But, even if it hits these numbers,investors may not reap further rewards.

Circuit City stock is up from a 52-week low of $15.26 to the current price of $29.64, very near the 52-week high. The company's trailing PE is 38.

While it is nice to see the company recover, the benefit of the improvement is probably already in the Circuit City stock.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies writes about.