Amit Chokshi

Why I'm Buying Circuit City Calls

Calls might be an interesting gamble on CC given how oversold it is. I agree with your comments, management should be taken to the woodshed and this company could be bankrupt.

A lot of CC "smart money" has been there since the teens, I wouldn't place much faith in that. Check out ROHI if you want an example of smart money that is getting fried as well.

Also, why would this be a buyout candidate. LBO firms are choking on a bunch of crappy retail LBOs like Linen's N Things, Claires, etc. Why go down that road again with a struggling retailer?

Secondly, they can't do a buyout, CC has no cash flow to lend against. The $480MM or so cash will be burned through which is why CC has set up the ABL facility.

The book value is worthless too, for CC you need to do a liquidation analysis. !00% assessment for cash, but A/R would be taken down to 70%, inventory probably 50%, PPE would be down to 50% and other assets around 50%. The rest would basically be zeros as far as tangible value so CC really just has $2.7B in tangible assets $2.9B in liabilities. Not to mention the lease breakage costs too.

Still, it's probably oversold and some calls might work out well but management is clueless and htere's little evidence that anyone wants to put in effort to bring anyone in to replace them. It's prob a tough job to take on too, competing with BBY, WMT, SHLD, COST, and TGT basically.