Circuit City Scrambles to Reverse Reality

By Mike Caggeso

Circuit City Stores Inc. (CC) will close 155, or 20%, of its 566 U.S. stores by Dec. 31 and slash its domestic workforce by about 17%, as the fledging electronics retailer scrambles to conserve cash and reverse six consecutive quarters of falling sales.

In the company’s Monday release, Circuit City said it is closing stores in 55 metro areas and will exit 12 markets entirely. It also said it is reducing future store openings, “aggressively” renegotiating current leases and considering “all available options and alternatives to restructure its business.”

The release also throws a lot of blame, citing “waning consumer confidence,” a “significantly weakened retail environment” and “unfavorable macroeconomic conditions.” 

Circuit City also said it is waiting for a nearly $80 million tax rebate it believes the federal government owes the company.

That figure is nearly twice its shrunken market cap.

“Since late September, unprecedented events have occurred in the financial and consumer markets causing macroeconomic trends to worsen sharply. The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors,” James A. Marcum, vice chairman and acting president and chief executive officer, said in the release.

“The combination of these trends has strained severely our working capital and liquidity, and so we are making a number of difficult, but necessary, decisions to address the company’s financial situation as quickly as possible.”

Missing from his statement is the fact that the electronics industry has widened over the past decade – amidst growing popularity of DVDs, video games, HDTVs computers and laptops, cell phones – spawning new competitors such as GameStop Corp. (GME) and Apple Inc’s (AAPL) iTunes in addition to its chief rivals Wal-Mart Stores, Inc. (WMT), Target Corp. (TGT) and Best Buy Co., Inc. (BBY). 

And those other companies are doing a much better job pushing the same merchandise off their shelves than Circuit City.

Uphill Battle

To gauge how steep an uphill battle Circuit City has, it helps to look back on key moments in its decline. Over the past year and a half, the company has slashed retail management positions, eliminated jobs at its corporate offices and laid off 3,400 retail workers.

On March 28, it was ousted from the Standard & Poor’s 500 Index.

The following month, Blockbuster Inc. (BBI) – another fading national company – made an unsolicited $1 billion acquisition bid for Circuit City for at least $6 a share. The idea was to create a supermedia retailer that might be more competitive.

That offer fizzled.

In May, the company put itself on the auction block, a day after Best Buy announced plans to open stores in Europe through a $2.1 billion 50-50 joint venture with London-based Carphone Warehouse Group PLC.

In June, it suspended its 4-cent dividend. And in September, CEO and President Philip Schoonover resigned on the spot.

All that carnage has caused Circuit City’s stock to fall 99% in the past year and a half – from about $30 a share to its current price of 36 cents a share.

Original post

Comments

[phil'spal:]

blaming market trends for CC's situation is just plain silly. long before the market tailspin, they themselves pooped in the bag, they themselves set the bag on fire on their own doorstep. they rang their own doorbell, and now that the house is on fire, they're diligently stomping all over that same flaming bag. they've fired their most productive staff, squandered their market share, alienated their customers, swindled their shareholders, destroyed the confidence of their vendors, withered to the point of facing delisting by the NYSE and are now entering into hostage negotiations with their landlords. they've frittered away any and every strength they may have had. how do you negotiate with a cornered rat? landlords cannot help but know that all the renegotiations would mean to them is that they'd get fewer bucks for their properties for the months that CC manages to avoid the inevitable bankruptcy filings.

2008 Nov 04 09:51 AM

[billddrummer:]

phil,

I couldn't have said it better myself.

2008 Nov 05 01:25 PM