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billddrummer

billddrummer
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  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    phil,

    Snakes too. I hate snakes.
    Oct 22 11:54 AM | Likes Like |Link to Comment
  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    phil,

    I like that analogy. Here's another one: Taking over CC now is like buying a bunch of foreclosed houses from WaMu that you didn't inspect. When you finally get around to viewing the properties, the sinks and appliances are gone, someone ripped out the copper plumbing, and the crawl spaces are full of water inhabited by malarial mosquitos. The yards are jungles hiding all sorts of vermin, and there are two dumpsters worth of trash in each one.

    Good luck getting back your investment.
    Oct 22 11:34 AM | Likes Like |Link to Comment
  • Can Circuit City Avoid Bankruptcy? [View article]
    phil,

    Spot on with your vision. I only wish that 3 years ago senior management had seen as well as you do now.
    Oct 22 11:17 AM | Likes Like |Link to Comment
  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    phil,

    Another thing: I'm sick and tired of reading posts that say that CC has a ton of real estate on its books and needs to sell off some stores. I've seen that comment literally a dozen times, both here on Seeking Alpha, and elsewhere.

    ATTENTION EVERYBODY: CC OWNS ONLY 5 STORES IN THE U.S.

    I hope people read that. It's shown in the company's financial statements, on the SEC filings, and in financial press releases.

    The naivete of some posters is nothing short of astonishing.

    There, I'm off my soapbox now.



    I'm not all that bright, but I do know how to read. And I try to read about what I'm posting about before I hit the Publish button.

    As a matter of fact, we didn't even discuss the new distribution center (leased) CC was building that was placed on 'indefinite hold.' Supposedly, the new center would improve efficiency and allow them to close two other centers (more than likely subject to early termination clauses). But the company announced a couple of months ago that the project was halted, with no ETA on when it would get done.

    An acquirer would have to come in and finish the work. Another non-productive outlay of cash.

    This is making me more and more angry. Angry because most of this could have been avoided. Better negotiations with landlords, canning the bottom 10% instead of the top 10% (a la Jack Welch), keeping up store stock--these are all simple fixes. And none of them were implemented. Instead, the company did just the opposite.

    It's sad too. Sad because investors have lost millions of dollars, and employees will lose thousands of jobs.

    Yet the boys at the top will keep their retention bonuses and parachute to safety, even as the plane slams into the ground.

    Now I finally understand where the phrase 'golden parachute' got its name. You get to bail out while the company crashes and burns. (Like I said, I'm not all that bright. Just an impassioned observer.)

    Look for a management communication soon.
    Oct 21 07:20 PM | Likes Like |Link to Comment
  • How Can Acting Bankrupt Help Circuit City Avoid Bankruptcy? [View article]
    To notsosmart,

    CC owns only 5 of the 714 stores in the US. All the rest are leased, and the company is on the hook for lease termination costs on about 80 vacant buildings already.

    So unlocking shareholder value by selling store sites won't work.

    The company does own a distribution center in Canada that's home for the InterTAN distribution network and Canadian HQ.

    CC also owns some of the land and half the building at HQ in Richmond.

    But it's not enough unrealized real estate value to go through the trouble of selling it. Plus, commercial real estate values are down all over the country (if you hadn't already heard).

    Not a lot of hidden value on the balance sheet.
    Oct 21 06:54 PM | Likes Like |Link to Comment
  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    phil,

    Thanks. And the buy recommendation was based on two things: 1) a spike in volume without any change in fundamentals; and 2) my sense that at the time, the business model could have been resurrected by a new management group.

    Todd says this brand is still a good one. I disagree. 2 years ago, it was a good one; now it's just another struggling retailer circling the bankruptcy drain.

    I'm still puzzled about why the stuff I noticed back then wasn't being addressed by senior management. I would have paid off those leases on empty spaces then, when interest rates were lower and sales hadn't crashed. Now, with the lending markets frozen for B and C credits, don't expect any assistance from the 'financial community.'

    Elsewhere, someone suggested that Wattles would take control of the remainder of CC and merge it with Ultimate Electronics, thus making Ultimate a nationwide chain. It all depends on where the remaining stores are located--if they're in direct competition with BBY, I think it will fail too. BBY is too big, has better spots, more leverage with vendors, and pricing power (particularly in the mid-to-upper premium CE segments that carry the best margins).

    I wouldn't want to face off against Big Blue. Sort of like taking a neighborhood grocery chain and challenging WMT.
    Oct 21 04:32 PM | Likes Like |Link to Comment
  • How Can Acting Bankrupt Help Circuit City Avoid Bankruptcy? [View article]
    To stox4u,

    I question whether the vendors will give the new CEO "a little time to turn this thing around."

    Granted, there's a credit line in place now for current operating expenses, but with the sense that it won't be sufficient to sustain operations through the holidays based on the most recent data, the outlook doesn't look real promising.
    Oct 21 02:23 PM | Likes Like |Link to Comment
  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    Sorry, phil, I meant 6/28/07.

    My bad.
    Oct 21 01:53 PM | Likes Like |Link to Comment
  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    phil,

    On 9/28/07, I posted this reply to an Underperform recommendation on the Caps page of Motley Fool:



    billddrummer (78.23) Submitted: 6/28/07 5:04 PM
    Recs: 0
    The company just filed its proxy statement with the SEC. The annual meeting wasTuesday. The compensation section is the most interesting. According to the proxy, the top 6 executives earned $15.6 million in 2007, including all compensation channels. But none of them received bonuses because the company didn't achieve EPS or operating margin goals. The CEO earned nearly $7 million from a company that lost $8 million. Looks like a push to me. He's making more than he would have if he had stayed at BBY, though.

    The hidden assets on the balance sheet are minimal. The P/E ratio is ridiculously high. And operating margins deteriorated in fiscal 2008 despite the company implementing the layoffs and other strategies to reduce expenses.
    In fact, operating expenses increased both in absolute dollars and as a percentage of revenue. Interesting how the company spent more money to save some, but it didn't appear that the savings took hold. Perhaps expense margins will improve in the next quarter, but I doubt it.

    Finally, if you look closely at the 2007 10-K, you notice two other things that represent ticking bombs. One is that CC has been burning through its cash the past 2 fiscal years, to the tune of over $700 million since FYE 2005. At 5/31/07, cash was down another $375 million compared to FYE 2/28/07. The other is that contractural obligations (principally operating lease payments) will nearly double from $576M in FY 2008 to $976M in FY 2009. Now, how will CC open all those new stores they have on the drawing board, if their operation is bleeding cash?

    This will be a really interesting summer. If same-store sales continue to drop the way they did the first quarter, all those newly hired associates will have to sell products to themselves.

    This situation was evident to me back in September of last year. Why didn't the senior management do something then? The stock was trading in the low teens.

    Nothing left to do now but fold up the tents.
    Oct 21 01:52 PM | Likes Like |Link to Comment
  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    "Buy now!!!" That's me channeling Jim Cramer.

    I looked back in my posts and recommended a buy when the stock was at $6/share. I thought someone was going to purchase the whole thing at around $8, and it would close before the 2nd quarter.

    Well, that didn't happen.

    My buy recommendation looks pretty dumb now. There hasn't been a period where it rose enough to dump it. And now, you just have to trust the lads in the board room to negotiate a truce with all the upset landlords that will have empty stores during the holidays. Those gross revenue rent kickers don't apply if your store is closed--unless the landlord is really shrewd and pulls numbers from the past three years, asking for a consideration of, say 90% of the average as part of the termination costs.

    But 2009 for the REIT business will be a bear.

    More to come.
    Oct 20 07:18 PM | Likes Like |Link to Comment
  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    phil,

    I wouldn't be a bit surprised if an enterprising store manager does just that with some old open box sets left over from last year--with analog tuners.

    The unsuspecting customer wouldn't know that their bright shiny flat screen will go dark on February 19--unless they have cable or satellite.

    All indications are that the digital feed replacing the analog signals is notoriously fickle, and will more than likely require boosting unless you live next door to the broadcast tower. So be prepared to fork over some dough for an antenna anyway.
    Oct 20 06:32 PM | Likes Like |Link to Comment
  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    phil,

    And back to your analogy, "There's not enough room on the boats. Either go down with the ship or jump--otherwise, the line for the firing squad forms to your right."
    Oct 20 05:43 PM | Likes Like |Link to Comment
  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    phil,

    The severance piece will get taken care of first, in my opinion.

    The DIP financing will pay out the landlords on the vacated stores and provide severance for store managers that are laid off.

    With a grim holiday season coming up, CC will do almost anything to get foot traffic--like sell flat screen TVs for $199.99. Yes, it's stupid, but what's a body to do?

    You may see a bump in comp sales next month, but don't expect them to sell a lot of warranties. Margins will get crushed (again), and the idea will be to sell out to the walls, at whatever you can get.

    BBY may have to amend its price match policy to limit stupid price matching. If the company is in Chapter 11 and bleeding money every day, they won't care what margins are because they're closing it anyway.

    I've got some more, but duty calls.

    Oct 20 05:41 PM | Likes Like |Link to Comment
  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    phil,

    Here's a more detailed account of the goings on at HQ:

    www.twice.com/article/...

    As we've speculated, it looks like the 'strategic review' has turned up some turkeys in the store count. But now it looks like the current credit line isn't sufficient to carry them through the holidays.

    I guess the higher interest cost pushed the burn rate past $200 million a month. Or the overhang in inventory brought about with lower-than-forecast same-store sales. Or the inventory slated for new stores that are now on hold indefinitely.

    Any number of reasons, but the bottom line is clear: CC is done.

    Bill
    Oct 20 03:43 PM | Likes Like |Link to Comment
  • Circuit City Falls Further: 'Bring Out Your Dead' [View article]
    phil,

    Well put, and spot on!

    Declining liquidity position--maxed out line of credit
    Challenging retail environment--DUH!!
    Exhausted all other possibilities--Eddie, why didn't you call us back?

    BBY hired fewer seasonal staff than projected, and let store managers decide how much seasonal help to put on. With bonuses on the line, look for thinly staffed BBY stores this holiday season. But the other thing that's at work is that turnover fell again (from 60% to 47%), making the seasonal hiring push less important.

    Bargain shopping will rule the day this holiday. And margins will suffer as a result. But it helps when you're already making money. If you're losing money, shrinking margins is the last thing you want.

    Mervyn's shared some of the same traits as CC--older stores in declining malls, with stale product and clueless salespeople. Kohl's freshened up its stores, stocked them like Macy's and countered with lower prices. As a result, Kohl's stores are inviting, bright and cheery. Mervyn's stores look like thrift shops, only bigger.

    BBY has something they call 'customer-centricity.' It's a way to connect with customers and satisfy their needs based on where the customer is coming from, not the other way around. Customer centricity is what's driving the traffic, but good prices will keep them coming in and spending what little money they have this holiday season.

    Like I said before, I'm cautiously optimistic. Profitability will be off, margins will get pressured, but at the end of the season, BBY will be left standing, and CC will (finally) expire.


    Oct 17 07:36 PM | Likes Like |Link to Comment
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