Circuit City: Facing Up to the Worst, Shares Rally

For Circuit City (CC), conditions have gone from bad to worse.

The struggling electronics retailer seems to be pushing hard to stay out of bankruptcy, but it is clearly going to be a difficult road. The company this morning announced that it will close 155 U.S. stores, all of which will close tomorrow and then re-open on Wednesday to start store-closing sales.

Circuit City said that consumer confidence and the overall retail environment have impacted the company’s sales and gross profit margin to a greater degree than previously expected. The company said some vendors have become reluctant to extend credit to the company; some manufacturers are now demanding upfront payment before shipping goods. He says other companies have not provided “customary increases in credit lines for holiday purchases.” Circuit City said that “the current mix of terms and credit availability is becoming unmanageable for the company.”

The company also said that a third-party appraisal resulted in a reduction of the estimated liquidation value of its inventory.

Circuit City said that the stores that are closing generated FY 2008 sales of $1.4 billion; the store closings will result in the company exiting from a dozen media markets. The closings will reduce the company’s headcount by about 17%.

Meanwhile, the company says that it is “considering all available options and alternatives” for the business, and will continue to “take appropriate actions to conserve cash, reduce expenses and improve liquidity.”

Taking a look at the list of store closures, I noted that it includes my local outlet, in East Palo Alto, and 24 stores in California overall. Other hard-hit states include Georgia, with 19 store closings; Illinois, 14 store closings; Arizona, with 13 closings; Ohio, 11 stores; Texas, 9 stores; and New York, 8 stores.

Encouraged by the company’s cost-cutting moves, investors have bid up CC today by 9 cents, or 34.6%, to 35 cents.

Comments

[woodwardchiro:]

I have tried shopping TV's at Circuit City the past few months and have been dissapointed when compairing them to Best Buy. They have got to become more competitive in pricing or add something unique to their experience if they want to keep pace with the other more 'fun' electronic stores. Sorry to see the job loss, hope this hleps them in the long run though.

2008 Nov 03 07:17 PM

[adam_hartung:]

Does anyone remember that Circuit City, just a few years ago, was the best performing company in Jim Collins' book "Good to Great"? Obviously, Mr. Collins' approach to management is worth some reconsideration given the fall of Circuit City. It would seem a new approach to management would be worth considering. Read more at www.ThePhoenixPrincipl...

2008 Nov 04 01:11 AM

[zee1:]

Circuit City lost the battle as well with so many online retailers

2008 Nov 04 09:16 AM