Circuit City's Layoff-Based Restructuring Plan Impresses Investors

Mar.29.07 | About: Circuit City (CCTYQ)

Circuit City (NYSE:CC) announced a restructuring plan yesterday that has the stock on the rise. At the heart of the plan is the lay off of 3,400 “store associates,” with focus on staff “who were paid well above the market-based salary range for their role.”

The company said it will hire new staff for those positions “compensated at the current market range for the job.”

OK, I know the consumer electronics business can be a rough market, but doesn’t this strike you as kind of creepy? Fire the highest paid workers, and replace them with cheaper ones? Now, maybe to a certain degree I’m thinking, I hope Dow Jones doesn’t think that would be a good way to run a news operation. But at another level, I’m thinking, I wonder whether firing your best salespeople - I presume they became higher paid in part by being good at what they do - will really be a smart move in the long run.

The company also cut a deal with IBM (NYSE:IBM) to outsource its IT infrastructure operations, which will result in 50 employees moving to IBM and 80 more losing their jobs. It also plans to explore alternatives for InterTAN, its Canadian retail unit.

Circuit City also said it now sees fiscal 2007 sales growth of 8%, down from previous guidance of 9%-10% growth, with domestic comp store sales growth of 6%, down from 7% to 8%.

Circuit City yesterday was up 39 cents at $19.27.

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