Circuit City Falls Further: 'Bring Out Your Dead' 282 comments
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Anyone remember the famous Monty Python skit? See it below:
Circuit City (CC) is the old guy being carried by John Cleese.
Circuit City Stores reported a wider quarterly loss and withdrew its financial outlook on Monday as the electronics retailer reviews its business, sending its shares down 10% to $1.26 a share.
Last week brought the overdue firing of CEO Phil Schoonover, also said it would suspend store openings beginning with its 2010 fiscal year to focus on turning around its operations.
Circuit City has reported losses for five of the past six quarters, and sales have dropped for more than a year. Q2 net loss was $239.2 million, or $1.45 a share, compared with a loss of $62.8 million, or 38 cents a share, a year earlier. Total sales fell almost 10% to $2.39 billion and same-store sales, fell 13.3%.
A year ago, in a post commenting on then-rumors that Sears Holdings' (SHLD) Eddie Lampert might make a bid for the company, I said, "Lampert, based on his past history, would more likely wait for these buffoons to run it into bankruptcy and pick it up for a fraction of today's price".
I doubt Lampert wants it, but if he does, bankruptcy is right around the corner..
Disclosure ("none" means no position): Long SHLD,None
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You're right about how the stuff that's released is only the tip of the iceberg of lies, and is more an exercise in spin mechanics than the truth.
I'm thinking they held off because of the negotiations, because it won't matter if they get a buyer. In addition, there's a 2% fee in it for the successful bidder, even if it doesn't close.
We'll see what happens.
Was in Vegas for CES, so this morning was my first opportunity to see any substantive news about CC...
This had been my first trip to the US since CES of last year, and I was surprised by the number of stores in some of the malls that were having "Closing Out" sales. Add to it the number of service staff overheard in the casinos talking about lay-offs and what not, and for the first time in the dozen years that I've been attending CES, I really got the impression Vegas was hurting. (It was easier to get around the show floor than ever before, and playing at the tables was much less crowded than it's been for many, many years.)
Anyway, looks like the CC chickens have come home to roost. The pressure form the loan maturation has forced the sale process, and as both of you guys have commented, who knows how serious these offers even are. Perhaps by Friday, things may be more clear?
As far as the canadian operations are concerned, the rumours are that the most credible InterTan offer is likely a management buyout. However, despite the spin/optomism of the company, financing the offer may become impossible as our economy has really started to fade up here in the last two months. In Phil's research article, the company claims that their sales were stronger than expected, but it's funny that there has been no report from the BK monitor since Dec. 3rd to actually confirm these claims. Oddly enough, the monitor's report of Dec. 3rd said that sales were off, and that the only saving grace had been some unpected cash reserves prior to the BK filing?
See below...
www.alvarezandmarsal.c...
We'll see, but my best guess is that the outcome for CC overall, is likely to be liquidation. At this point in the road, I just can't see anyone laying out the cash and taking on that kind of risky expansion, when all indications are that we need to be doing everything possible to just hang in there for a while, and hopefully ride this thing out. Retail has become a sector where whoever that can weather the storm better than the other guy will survive, and I'm afraid that CC is too far gone at this point.
CanadaD.
CanadaD, thanks for the report from the CES convention. Attendance was down 20% from last year, and from what I read, no really compelling 'gottahave' products came out of the event.
This may be the last day I can post for awhile, because the company is tightening up internet access for all employees.
Keep this thread running as long as you can, if I'm not around.
Bill
The auction begins today:
www.twice.com/article/...
The only question is whether it's a liquidation or a going concern.
We'll find out.
i had a few minutes to kill this morning, so i eavesdropped on the google finance ccty discussion board. i think it should be formally recognized somewhere as the official meeting place of panic and greed.
Looks like a liquidation... At least as far as the US stores are concerned. I don't think they'll be able to save the canadian side either, since the line of credit is in the process of being pulled.
Here's the link.
www.timesdispatch.com/.../
Court documents were filed in Canada yesterday to enforce the "sixth charge" on Intertan, that would effectively recall the DIP financing if the order proceeds. Not sure how that has worked out yet, but if I find anything out, I'll let you know.
Cheers,
CanadaD
Anybody think this might be a play on the stock? Make a phony statement to drive the price down?
I don't know enough about law to even comment as to whether that's legal?
CanadaD.
investor.circuitcity.c...
Sorry to all the CC employees. Hopefully things will work out for you.
CanadaD
I saw the same thing:
www.bloomberg.com/apps...
It will be interesting to see if InterTAN can do the management buyout and stay open. It won't take much to tip it over.
Bill
i picked the wrong day to defrag my hard drive! i'm still catching up on all the feeds, releases and blogs. if i got it straight, the canadian court date is jan 23, and they're looking for a buyer of the going concern. i may be all wrong, but this could easily end up as a repeat performance of their day in US court. difficult economic climate, and reluctant lenders limit the number of possible buyers. whoever they may be, they will have to have deep pockets ,an established network of suppliers and an uncharacteristically optimistic view of the company's ability to prosper in the existing environment. granted, from what i've seen, the cdn operation didnt do as badly as their american stores, but if somebody is going to tell me that they actually did well, they should be prepared to show me. there's no victory in doing big dollars when it's all done with loss leaders. we're coming into the days of retail doldrums. for the most part, the market has been glutted and the consumer already has all the toys and all the maxed credit cards they can use for now. pricing pressure will be high and margins will be squeezed. short term cash flow is going to be light. the major competitors are all still there as are all the fixed overhead expenses. we might be in for a kickass 2010 retail christmas (who knows?!) . it's a long wait between then and now but it's going to cost any buyer dearly to wait and see in the meantime. nope. i'm sorry, but i cant see a happier outcome in canada.
I would have to agree...
The spin that InterTan is putting out there, is that they beat their forecasts. However, anyone smart enough to look in the proper place for the info, (the court produced montior's report) will see that they are about $1M CAD behind in sales. Add to that, the expenses were around $2M higher than predicted, and there is not much in the way of good news. The only thing that sways them over, would be the initial cash reserves they had in place at the start of November...
See below... (pages six through eight show the numbers I'm refering to)
www.alvarezandmarsal.c...
They've been given unitl Thursday the 23rd to produce a buyer. As you've said, it may all be smoke and mirrors at this point. It is just as likely that the buyer could be another liquidator.
One thing that you guys may be able to determine that I cannot. (I don't exactly understand the court documents...)
There was a court order on Dec. 24th preventing any advances from InterTan to CC-US. From what I can see, the bank filed a motion on the 14th, to have this order lifted and recall the DIP financing, as per the initial terms of the loan. This would effectively crush InterTan, seeing as they rely on the DIP loan to stay in business, for now.
The order filed on the 14th, extended the timing for a sale, as well as extended the BK protection until March, as well as approved Rothchild's as the company managing the "sale". I cannot find any information as to whether or not the bank received clearance to recall the loan. Or, is it a given that with the extensions on the other items, that the loan continues?
If you can find out, please fill me in.
Otherwise, I guess we wait until Thursday to find out.
CanadaD.
i dont know enough about the court rulings to answer your questions. we'll both find out tomorrow
Further on the post mortem:
In the filings on the BK website, is a financial statement CC filed covering the 11/10/08-11/30/08 period. Part of the filing required that they post monthly financial statements.
During the 21 days immediately post-filing, the company lost $400 million.
Here's the link:
www.kccllc.net/circuit...
Clearly, there was no hope that the ship could have been saved, if it was taking on water at that rate.
today was the deadline for filing of proposals for the sale of The Source in Canada. that's about all we'll get for now, since nobody's offering any particulars to the public. i did find an article which explains the delay, but says nothing about the terms of operation while in this phase.
"Through a third-party, court-appointed monitor, potential buyers were
encouraged to show their interest last month. In all, 16 groups expressed
interest in buying the Canadian corporation. Ronald Cuthbertson left his job Dec. 17 as president of InterTAN in hopes of putting together a bid
proposal.
Some were selected from that group to make formal proposals. That deadline is today. Who is pitching to purchase the Barrie-based corporation and how many groups is not being revealed. “It could be weeks, it could be a few months…and then announce a winner,” "
(www.thebarrieexaminer....)
there ya go... more drama, suspense and intrigue. have a great weekend!
Well, perhaps the Canadian piece will survive. And did you notice that Bruce Besanko joined OfficeMax as CFO?
www.bloomberg.com/apps...
He's no dummy, and probably had his resume already circulating even before the Chapter 11 filing.
Now, who's going to hire Bill Cimino?
the question still remains: who is willing and/or able to finance the project? they didnt have much luck finding anybody for CCTY. granted, this is smaller scale, but the banks have their hands full with their own problems and the retail sector is in shambles. it wont be any picnic finding private financing either, but who knows.... if the price is right, anything could happen.
maybe cimino could hook up with john thain and buy into it. of course, the first thing to get done would have to be the office redecorations.
no major surprises, but here's a brief update on the Intertan story:
(www.globeinvestor.com/.../)
some interest shown in a purchase as a going concern including the rumoured best buy interest and the management buyout bid. still all speculation, of course, and any acceptance of a proposal is subject to court approval, but the article does echo my concern about the difficulty in finding financing to get the deal done. if management wants to buy it out, i hope the courts insist on them putting a healthy chunk of their own cold hard cash on the line and put safeguards in place to prevent them from milking the company dry, stiffing creditors and/or shareholders and repeating all of the abuses we've seen at CC before they walk away from it after the golden teat has dried up.
Appears a ruling on the loan came out...
From what I can see, looks like the US creditors may have to wait, at least for the moment. However, it appears as though the judge has left the issue of whether this can be interpreted by the bank as a Canadian default YTBD... (Which was what InterTan was most concerned about.)
Maybe you guys can figure it out. Have a look...
www.alvarezandmarsal.c...
As far as the potential bidders, who knows? But, it may not matter anyway.
See ya.
CanadaD.
To CanadaD,
Thanks for the link. It looks like the US bankruptcy court and DIP lenders did an end-around on the Canadian order to step ahead of the unsecured creditors named in the Canadian filing on the proceeds from any asset sales in Canada.
One thing I'm not sure of, though, is how priority was originally established when the initial filings took place. If the DIP lenders held that Canadian proceeds were to be applied in the same manner as the pre-petition agreement, then advances on the DIP facility to Canada would have to be repaid before proceeds were available in Canada. The vaunted '6th Charge' seems to be a way to equalize the pain between Canada and the US operation.
Since CC in the US is liquidating, and it's probably not going to return much in the way of cash to the estate after expenses, there may be a huge deficiency that will show up in the InterTAN books for its share of the DIP financing--even though it's marketing itself as a going concern. Also at work is the potential that the deficiency could be claimed by US creditors left out in the cold (another pun) as the liquidation winds up. They may push for rights to the Canadian assets based on the way the Amended Order was written.
It looks to me like the responsibility for that potential amount is what's at stake, not to mention the position of the unsecured creditors waiting for some clarification on where they stand.
Interesting stuff. The game is certainly afoot!
Bill
Well, the liquidation sales in the US are proceeding rapidly, and it's only a matter of a few weeks until CC ceases to exist in the states.
Bell Canada has struck a deal to acquire the 570 InterTAN outlets:
www.bloomberg.com/apps...%
3AUS&sid=azBO7KZWT...
Leases are for sale at all the US locations (who wants them now, with retail the way it is?), the website and name are on the market, and DJM Realty is disposing of the minimal amount of real estate left on the company's books--5 stores, the portion of the HQ facility it owns, and some undeveloped land parcels.
Perhaps someone can get traction out of licensing the logo, like Sharper Image did after it liquidated. I doubt it.
The end. El colmo. Le comble.