A Look Back at Circuit City Stock Performance

In March of last year (and again in the summer) Circuit City announced various new initiatives to cut expenses, improve sales, and jump start the process of turning the company around that began in '06. Let's take a quick look at how the stock has performed since the company announced cost cutting measures that included firing 3,400 of their most successful salespeople so they could hire less experienced people (or any of the fired ones who were desperate enough to come back) at lower wages on March 28, 2007:

• View the CC WikiChart on Wikinvest

This situation is a classic example of a company that has shot itself in the foot by focusing on short-term costs instead of looking at the return on same, simply put: even if the short-term costs are higher it just makes more business sense to invest in the more skilled resources because of the higher sales they generate. While there is nothing inherently wrong with cost cutting, it doesn't make sense if you're ditching a high ROI cost for a low ROI one.

Finally can someone tell me why Phil Schoonover and company haven't been ridden out on a rail yet? They were brought in to turn around the company in '06 and have yet to show any significant results, and the share price has fallen 91.05% since the retooling of their turnaround plan last year.

What is the board waiting for? The stock to fall under $1.00?

To put things in perspective let's look at the share price of Best Buy over the same time period.

• View the BBY WikiChart on Wikinvest

As you can see despite everything happening in the economy right now Best Buy's share price has only fallen by around 10%, so Circuit City can't exactly blame the economy for this one especially when spending on electronics was one of the few areas showing a YoY increase in the last consumer sales report.

Disclosure: At the time of publishing the author didn't own a position in any of the companies mentioned in this article.

Comments

[ddh:]

The assumption is that the sales people terminated were 3400 of the "most successful" sales people- this is evidently determined by highest paid- even though BBY had already implemented this strategy years before and has been successful with the low wage help. Could it possibly be that the margins on warranties evaporated and that pressure tactics (for commissions) were destroying customer goodwill? I think you and others are failing to denote this has become a commodity business and technology is changing so fast that products life cycles are rapidly declining. This harping about customer service and knowledge is greatly exagerated and is not confined to CC-I see it at BBY, i don't need the initial greeting to help my self esteem . As to the CEO, I agree he had lost his moorings, but unlike you I don't lose patience .

2008 Aug 25 11:25 PM

[billddrummer:]

To ddh,

Apparently, people appreciate personable, knowledgeable staff, even if they're not on commission. Which would help explain why BBY has shown sales and profit growth over the past 3 years while CC has shown the reverse.

As for the commentary, I believe it's spot on. A cash rich hedge fund (they're out there) would close the stores that don't perform, forgo any attempt to continue the big-box idea, and turn the business into a boutique chain selling to high income people.

Or just sell off the leases and hope for the best. Either way, the company is done.

2008 Aug 26 04:38 PM