Circuit City hires restructuring firm -- is bankruptcy on the horizon?

More bad news for Circuit City (NASDAQ: CC). After the resignation of its CEO followed by disappointing quarterly results and the company's decision to withdraw its guidance, the company has hired turnaround specialist FTI Consulting Inc. as an adviser on restructuring. Stifel Nicolaus & Co. analyst David Schick wrote that "The risks of bankruptcy are very real [...] Vendors will have to decide how they plan to do business at Circuit City.

''Reports of a company hiring a restructuring specialist are almost never good for shareholders, but it may be a sign that Circuit City is finally being realistic about just how dire its situation is. To date, the company has explored a bizarre strategy of opening new stores in the face of devastating sales declines as it loses traffic to better competitors like Best Buy (NASDAQ: BBY) and Wal-Mart (NYSE: WMT).. . . more

Circuit City Halts 2010 Store Openings

RICHMOND, VA-Circuit City Stores plans zero growth beyond existing commitments for fiscal 2010 and is examining store openings for the second half of this year (fiscal 2009) as it looks to improve the performance of its current business, the company said at its second quarter conference call.

The company current plans between 45 and 55 domestic store openings in the current fiscal year, of which 24 have already opened.

“Our current store base doesn’t support the customer or associate experience we want to deliver," said James A. Marcum, vice chairman and acting president/CEO. "We expect to dramatically reduce our store openings, other than those fulfilling existing commitments, which are limited."

Previously, the company had announced a review of strategic alternatives. But the current market has made it prudent to focus on improving the existing business, Marcum said. . . . more

Circuit City loss widens; company reviews business

NEW YORK (MarketWatch) -- Electronics retailer Circuit City Stores Inc. said Monday that its quarterly loss widened, hurt by charges to write down the value of its fixed assets and a significant decline in traffic that led to worse than expected sales.

The company withdrew its previous fiscal 2009 outlook as it said it's reviewing all aspects of the business ahead of the holiday season, its biggest selling period.

Circuit City shares fell 11% in pre-market trading.

Net loss widened to $239.2 million, or $1.45 a share, from $62.8 million, or 38 cents, a year earlier. Sales in the quarter ended Aug. 31 fell 9.6% to $2.39 billion from $2.64 billion, the Richmond, Va.-based company said in statement. The decline was worse than expected by analysts. Same-store sales dropped 13%, led by a drop in the U.S. . . . more

Will change at top jolt Circuit City?

RICHMOND, Va. — A change at the top may not be enough to jump-start Circuit City Stores Inc., after the head of the nation's No. 2 consumer electronics retailer abruptly resigned amid plummeting stock prices and calls for his ouster.

Four months ago, Chief Executive Philip J. Schoonover asked shareholders for more time to turn around the company amid talks of a possible sale, despite some acknowledged missteps. This week, Circuit City's board decided more needed to be done.

But the move did little to inspire investors or analysts, and the company's shares dropped more than 4 percent.

Circuit City, which has seen only one profitable quarter since the second quarter of 2007, "still faces a mountain of challenges," JPMorgan analyst Chris Horvers told investors in a report following the change of command.

Schoonover stepped down Monday as chief executive, chairman and president of the Richmond, Va.-based company. Schoonover had joined the company in 2004 from rival Best Buy Co., where he was executive vice president of customer segments. . . . more

Circuit City CEO resigns amid troubles

RICHMOND, Va. (AP) -- The chief executive at Circuit City Stores Inc. stepped down Monday and was replaced by a board member appointed to defuse a fierce proxy battle as the struggling electronics retailer steps up its turnaround effort.

Philip J. Schoonover, Circuit City's chief executive, chairman and president, had joined the company in 2004 from rival Best Buy Co., where he was executive vice president of customer segments.

The 48-year-old will be replaced by board member James A. Marcum, who will stand in as the chain's interim president and chief executive. Meanwhile, former tobacco executive Allen B. King will become Circuit City's new chairman.

. . . more

Circuit City Still Looking to Sell

Circuit City Stores Inc. (Richmond, Va.) said it is still considering a sale of the company, four months after it first announced it was reviewing its options to improve shareholder value.

"The board continues to pursue strategic alternatives for the company that offers the best possible results for our shareholders in the long term," said ceo Philip Schoonover, announcing the appointment of James Marcum as the company's vice chairman. Marcum was one of three directors elected to the retailer's board in June to defuse a proxy battle with investor Mark Wattles, who controls a 6.5 percent stake in the company.

In May, Circuit City hired Goldman Sachs & Co. to explore its options and opened its books to Blockbuster Inc. (Dallas), which had made a takeover bid of more than $1 billion, proposing a plan for a 9300-store chain to sell electronic gadgets and rent movies and games. Two months later, Blockbuster withdrew the bid.

Circuit City has seen only one profitable quarter since the second quarter of 2007 but has continued to defend its multi-year turnaround plan despite some acknowledged missteps and has asked shareholders for the time necessary to leverage the company's future.

"We are confident that we possess the keys to a successful turnaround,” said Marcum, “the support of our vendors and other business partners, access to sufficient liquidity under our asset-based credit facility and the dedication of our experienced management team."

Source: VMSD.com

Blockbuster CEO Explains Crazy Circuit City Bid: Desperate Cry For Attention

We were never able to wrap our heads around Blockbuster's odd bid for Circuit City; neither were investors. But now that Blockbuster (BBI) has finally walked away from it, CEO Jim Keyes comes clean. He was never that interested in it, anyway. It was just more effective than paying for ads or rentin a booth at next year's CES. WSJ:

Blockbuster is now a stronger contender in electronics retailing, Mr. Keyes argued, because manufacturers started courting the company after the bid.

"We were really not on the radar screen of any major consumer-electronics manufacturers previously," Mr. Keyes told Dow Jones Newswires. "They did not see Blockbuster as a potential retailer of these devices. With the announcement of the Circuit City transaction publicly, it caught the attention of all the [consumer-electronics] providers."

Of course, that result must only make investors wonder why Blockbuster offered a hefty 58% premium for Circuit City back in April, with no knowledge of its target's finances, and pursued its bid so aggressively that it enlisted corporate activist Carl Icahn.

We think investors will also wonder just how much the Circuit City bid cost them in legal and banking fees. We imagine that they'll find out soon, when the company files it's next 10Q. Hope they got their money's worth.

Source: Silicon Alley Insider

Circuit City store still in works, despite retailer's challenges

Hyannis, MA-Construction crews are building a Circuit City store on Route 132, but the company's fortunes are hardly written in stone.

The new store, slated to open in September or October, comes at a time when Circuit City is trying to counter its well-documented financial trouble. Sales fell more than 11 percent in the first quarter of this year, resulting in a net loss of $164.8 million. A takeover proposal from Blockbuster stalled and now appears unlikely to occur.

But in the midst of financial uncertainty, Circuit City is expanding.
The Hyannis location will be one of 45 to 55 new stores opening across the country over the next year, Circuit City Stores, Inc. said. The move is raising eyebrows among industry analysts, who caution that expansion might not cut losses.

"Circuit City is pinning its future on turning around its retail options," said Alexandra Biesada, a retail expert at Hoover's, a corporate analysis company.

Biesada said it is becoming more difficult for companies to secure the capital to expand.

"Circuit City, to continue to grow, will need credit," Biesada said.

"But retail is getting hit in the credit crunch."

Circuit City is reinventing itself aggressively, overhauling the layout and sales strategies of its stores. Public relations representative Jennifer Stills said the company is confident the new-model stores will have a positive impact on business.

The new design, called "The City," uses a smaller layout and sales representatives who are trained to be more technology-savvy. The Hyannis location will be built on the new model.
"All of the models have had more success (than traditional layouts)," Sills said.

Sills said she could not comment on whether the strategy was designed to counter the company's recent losses. But retail analyst Donna Flagg, of The Krysalis Group corporate consultancy firm, said other companies have tried the strategy before. The results have been mixed.

"Starbucks kept expanding and expanding and now it has to pull back," Flagg said.

However, she added that expansion strategies can work if they are carefully managed. She cited the Duane Reed chain of pharmacies in New York, which struggled through a period of expansion before business stabilized.

But the factor that will most determine the Hyannis store's success might be its location -- just down the street from the Best Buy in Cape Cod Mall.

Flagg said it will be hard to gauge the competition until the store opens.

"It depends on how loyal the Best Buy customers are," Flagg said. "If they aren't satisfied, Circuit City might have an advantage."

Source: Plain Vanilla Shell

Is Circuit City Headed for a Blowout?

Blockbuster's decision not to buy the retailer sent the stock tumbling. A Chapter 11 bankruptcy filing may be in the offing

Will Circuit City (CC) join the long list of electronics retailers, like Tweeter Home Entertainment and Harvey Electronics, that have filed for Chapter 11 bankruptcy protection in the past year? Given that shares of the Richmond (Va.) company are trading at just over 2, Wall Street is betting that could be a possibility. "Circuit City is in very serious trouble, and any scenario is possible today," says Nick McCoy, senior consultant at TNS Retail Forward, a research firm.

Circuit City's market capitalization currently is a mere $368 million—pocket change for a large private equity firm. But buyers are not lining up and have clearly concluded that the chain's problems won't be easy to resolve. On July 1, beleaguered movie-rental company Blockbuster (BBI) effectively delivered a slap in the face to the nation's second-largest electronics retailer by withdrawing its proposal to acquire Circuit City. "Based on market conditions and the completion of our initial due diligence process, we have determined that it is not in the best interest of Blockbuster's shareholders to proceed with an acquisition of Circuit City," said Blockbuster Chairman and CEO Jim Keyes.

Plenty of Cash

Blockbuster's move sent Circuit City’s stock tumbling a further 15%, to $2.14 a share, on July 2.

Now, even if a private equity player decides to buy Circuit City, there's speculation that the buyout might take place under a Chapter 11 reorganization plan. Such a filing could certainly take care of a key problem that CEO Philip Schoonover has often pointed to, which is that many of the company’s 682 stores are in poor and underperforming locations, and would be expensive to close because they have long-term leases.

A potential buyer can take advantage of a special provision of the U.S. bankruptcy code, called Section 363, allowing it to sell assets and get out of leases and contractual obligations under the protection of the court. "A 363 sale short-circuits the whole process, and the debtor can sell assets free and clear of any liens, and thus get a cleaner title," says Rich Hynes, a professor of bankruptcy law at the University of Virginia School of Law.

Circuit City spokesman Bill Cimino says the company has adequate liquidity to survive several quarters, if not years. "To my knowledge, a Chapter 11 filing is not part of the strategic alternatives that we are looking at," he says.
Wal-Mart Effect

The company says it is making progress toward returning to profitability in the second half of the year, through better sales of accessories and warranties and customer service improvements such as training sales reps to greet customers, ask the right questions, and make recommendations.

Some analysts and investors are doubtful, however. "Sure, the company has cash, but the question is can they return to profitability in this environment? The market is saying no," says Andy Hargreaves, an analyst at investment bank Pacific Crest Securities in Portland, Ore.

Circuit City has been in dire straits ever since prices plummeted 40% to 50% two years ago (BusinessWeek, 4/23/07) for large flat-panel TVs, which were the chain's highest-selling item. It is being clobbered by newer competitors like warehouse club Costco (COST) and discounter Wal-Mart (WMT), both of which have been aggressively promoting electronic goods.

If anything, Wal-Mart has stepped up its offering of various electronic offerings. On June 3 the company announced that it had increased its assortment of high-definition TVs by 58% and had introduced new models from Sharp. It increased floor space for social gaming and video players from Samsung and Panasonic that offer pictures in the latest crystal-clear Blu-ray technology.
"As the popular high-definition flat-panel TVs and iPods become more commoditized, it's all about price now," says McCoy of TNS Retail Forward. "Wal-Mart has an advantage because of its size and superior bargaining power."

Suitors sought

Adding to Circuit City's woes is the economic downturn and the fact that consumers have clamped down on spending. Circuit City reported a loss of $165 million its fiscal first quarter ended May 31 and said sales at stores open for at least a year, a key measure of a retailer's health, were down 12.2% in the quarter.

In May, Schoonover hired investment bank Goldman Sachs (BusinessWeek, 5/9/08) (GS) to review strategic alternatives. Circuit City is under immense pressure from shareholders who have bought in anticipation of a sale. In particular, activist shareholder Mark Wattles, who controls a 6.5% stake in Circuit City, wants the company sold.

In an interview a week ago, right after the Circuit City annual meeting, Wattles said that at least a couple of private equity firms were in talks (BusinessWeek, 6/24/08) to acquire the company and that an announcement would come within four weeks. Wattles also had three of his nominees elected to Circuit City’s board of directors; they seem to have the directive to secure the best price for the company if it is sold.

Wattles didn't return calls for comment on the latest twist in Circuit City's fortunes. However, a Chapter 11 filing would probably not be in his best interest. The average purchase price for his 6.5% stake, or 11 million shares, is $4.11. Already, the stock is trading at half of that. Even if a buyer emerges who wants to reorganize Circuit City under Chapter 11, "It is rare that shareholders receive even a dime during a bankruptcy," says Hynes.

Source: Business Week

Blockbuster withdraws plan to acquire Circuit City

Blockbuster withdraws proposal to acquire Circuit City because of market conditions

NEW YORK (Associated Press) - Blockbuster Inc. said Tuesday it is withdrawing its proposal to buy Circuit City Stores Inc., the big-box electronics retailer whose sales have tumbled this year.

Chief Executive James Keyes said in a written statement that the proposed deal, at a price of more than $1 billion, didn't make sense because of market conditions. Blockbuster shares jumped nearly 12 percent on the news, while Circuit City shares continued their fall.

Blockbuster, the nation's largest movie-rental chain, will still try to merge content such as movies and games with the sale of electronic devices under one roof _ but it will be at Blockbuster's own stores, Keyes said.

Circuit City Chief Executive Philip J. Schoonover said his board was still exploring strategies to help shareholders, which he said didn't require Blockbuster's presence.

The retailer's stock has dropped below $3 from its peak near $31 in May 2006, and the shares have lost about half their value since a one-day rally spurred by Blockbuster's bid. Blockbuster shares have fallen 20 percent since the bid was announced in April.

"Clearly Blockbuster shareholders didn't favor this deal," said Michael Pachter, an analyst with Wedbush Morgan Securities. "The company has done everything right since Jim Keyes took over, except making this bid. ... Circuit City's business is just plain in trouble."

Dallas-based Blockbuster had offered at least $1 billion for Circuit City and planned to create a 9,300-store chain.

Blockbuster went public with its offer after its initial overtures were ignored by Circuit City's board. Eventually, the Richmond, Va.-based company agreed to open its books to Blockbuster.

But the deal _ a marriage of two companies that each lost money last year _ was viewed with skepticism by many investors. Pressure on Blockbuster to walk away grew in June, when Circuit City reported that its loss tripled and same-store sales plunged 11 percent in the quarter that ended May 31.

It was a difficult period for other retailers too, but Circuit City's performance was worse than rival Best Buy Co., which saw its profit decline in the same period by 7 percent.

As of May 31, Circuit City operated nearly 700 U.S. stores and had 775 stores and dealer outlets in Canada. In its last fiscal year, it lost $320 million on sales of $11.7 billion.

Blockbuster has more than 7,700 stores worldwide. It lost $85 million last year on revenue of $5.54 billion.

The rental chain faces tough competition from the mail-delivery service of Netflix Inc. and cheap DVDs for sale at discounters such as Wal-Mart Stores Inc. Since Keyes was hired last year, Blockbuster has moved to cut costs and limit losses in its online service, Total Access.

Before news of Blockbuster's decision, shares in the movie-rental chain rose a penny to close at $2.51. In after-hours trading, they rose 29 cents, or 11.6 percent, to $2.80.

Source: CNNMoney.com

Circuit City CEO mum on buyout prospects at annual meeting

RICHMOND, Va. - Circuit City Stores Inc. stayed mum on Tuesday about whether a buyout is in the future for the consumer electronics retailer, but an activist investor expects an announcement of a possible sale within the next month.

Mark J. Wattles, whose investment firm holds a 6.5 percent stake in Circuit City, said three companies are in the late stages of conducting due diligence in regard to buying the Richmond-based company.

"The sniffing is over with," Wattles said after the company's annual shareholder meeting.

Wattles declined to identify the companies, but implied that one of those was Dallas-based video-rental chain Blockbuster Inc., which announced a more than $1 billion takeover bid in April with plans to create a chain that would sell electronic gadgets and rent movies and games.

Chief Executive Philip J. Schoonover gave no update to investors about the company's hiring of Goldman Sachs & Co. to explore strategic alternatives, saying there's no official time frame for any action.

Instead Schoonover defended Circuit City's turnaround plan, but acknowledged "some missteps in execution" and asked shareholders for time necessary to leverage the company's future.

"We're in a good industry despite headwinds in the economy," Schoonover said. "All this work is important and rational. We have significant opportunity to improve profitability in our core business."

Shares of Circuit City slipped 2 cents to $3.35 Tuesday after sinking to a 52-week low of $3.20 earlier in the session and tumbling more than 21 percent on Monday. Shares have traded as high as $15.99 over the past year.

Last week, Circuit City said its loss widened in the first quarter because sales at established stores fell more than 11 percent. It reported a loss of $164.8 million in the three months ended May 31 compared with a loss of $54.6 million a year earlier. Circuit City has seen only one profitable quarter since the second quarter of 2007.

Meanwhile, rival Minnesota-based Best Buy Co. reported a 7 percent drop first-quarter profits last week, saying net income dipped to $179 million from $192 million.

Circuit City also forecast a wider second-quarter loss than analysts were predicting and suspended its dividend to keep capital available for its turnaround efforts.

Shareholders on Tuesday voted overwhelmingly to expand the company's board to 15 in order to add three directors originally nominated by Wattles. Last month, Circuit City defused a proxy battle by agreeing to nominate the directors.

Those directors are: James A. Marcum, an operating executive at merchant banking firm Tri-Artisan Capital Partners and former chief executive at Ultimate Electronics; Elliott Wahle, chief executive of Toronto-based Rustique Home Furnishings; and Don R. Kornstein, a managing member of strategic management and financial consulting firm Alpine Advisors.

Source: Forbes.com

Wall Street to Blockbuster: Lower bid for Circuit City or walk away

Wall Street is sending messages to Blockbuster about its bid for Circuit City.

Don't do it. But if you do, pay less.

Blockbuster Inc.'s stock declined 10 percent Friday, closing at its 52-week low of $2.52 a share.
Circuit City Inc.'s deteriorating performance and Blockbuster's shrinking stock price make Blockbuster's $6 a share bid for the consumer electronics chain ill-advised.

Richmond, Va.-based Circuit City on Thursday reported a first-quarter loss of $1 a share, a 12.2 percent decline in same-store sales and deteriorating cash position.

A leading Blockbuster analyst on Friday said he gives the $1 billion proposal a 5 percent chance of happening.

Arvind Bhatia, of Sterne, Agee & Leach in Dallas, said he bets Blockbuster will either lower its bid to $4-to-$5 a share or walk away.

Blockbuster will update its intentions for Circuit City soon, within two weeks, he said.

Blockbuster has been reviewing Circuit City's books, and the Dallas-based company continues to say it will pursue Circuit City only if the deal makes sense strategically and financially.

A lower bid could make shareholders more receptive to Blockbuster management's synergy argument. The movie rental chain is trying to become a home entertainment store, and Circuit City could benefit from Blockbuster's higher store traffic, says Blockbuster chief executive Jim Keyes.

Blockbuster investors will need to see more than synergy, Mr. Bhatia said, specifically, how Circuit's core business could be turned around. Blockbuster could walk away, but he sees a merger at a lower price as the more likely outcome.

Sterne, Agee & Leach has a buy rating on Blockbuster shares with a price target of $5.75 a share, based on future earnings estimates.

Source: The Dallas Morning News

Circuit City Puts Itself Up for Sale, Hires Goldman

May 9 (Bloomberg) -- Circuit City Stores Inc., pressured by investor Mark Wattles to raise its stock price, put itself up for sale and opened its books to Blockbuster Inc. and billionaire Carl Icahn to prepare for a possible offer.

The second-largest U.S. electronics retailer rose as much as 13 percent in New York trading.

Blockbuster made an unsolicited bid of $6 to $8 a share for Circuit City in February, provided it could study the retailer's books. That would value Circuit City at $1.35 billion, more than 50 percent higher than its market capitalization now. Icahn said today he'd purchase the company should Blockbuster fail to get financing. Circuit City hired Goldman, Sachs & Co. to review its options.

"This is a significant development and makes it more likely that a deal will happen,'' Richard Hastings, an analyst with the Federation of Credit and Financial Professionals in South Plainfield, New Jersey, said in an interview.

Circuit City, which lost money in the past two years as Best Buy Co. and Wal-Mart Stores Inc. lured customers away, has opened smaller stores and fired higher-paid employees to lower costs. Wattles, who owns 6.5 percent of the retailer, had sought to replace Chief Executive Officer Phil Schoonover and gain five seats on the board, arguing that management's strategy isn't working.

Wattles and Circuit City have agreed to include three of his nominees as part of a slate of directors to be elected at this year's annual meeting, the retailer said in a separate statement.

Circuit City, based in Richmond, Virginia, climbed 41 cents, or 8.6 percent, to $5.20 at 12:45 p.m. in New York Stock Exchange composite trading. Blockbuster fell 4 cents to $2.64.

Blockbuster `Pleased'

Blockbuster said in a separate statement that it was "pleased'' with the decision. The world's largest movie-rental chain, which also lost money last year, has said it would combine electronics with movies and eliminate overlapping store locations.

Circuit City is trading 13 percent below the low end of the preliminary bid. It once rose as high as $31.54 and has lost 84 percent of its market value since May 2006.

"Consumer-electronics is littered with the corpses of investors who thought they could make it in this competitive industry,'' said Richard Weinhart, an analyst with BMO Capital Markets in an interview. "Combining two struggling retailers isn't likely to produce winning results.''

Icahn, who owns 16 percent of Blockbuster, first began purchasing its shares in 2004. He began a proxy fight in 2005 that led to the appointment of himself and two of his nominees to the chain's board. Blockbuster has dropped 72 percent since the end of 2004.

Icahn's Role

"I don't know what Icahn's doing here,'' said John Orrico, a manager of the $200 million Arbitrage Fund which invests in takeover targets. "Throwing good money after bad is the way we view this strategy. We don't see this transaction being a smart move for either party.''

Circuit City sought a letter from Icahn guaranteeing that he would acquire the electronics retailer should a review of its financial information be deemed satisfactory and Blockbuster be unable to complete its offer, Icahn said today in a regulatory filing.

If a public statement to that effect weren't made, Circuit City wouldn't allow Blockbuster to review its books, Icahn said.

Wattles, 47, founded the Hollywood Video chain and sold it in 2005. He bought retailer Ultimate Electronics Inc. at a bankruptcy auction that year.

Source: Bloomberg.com

Circuit City Gets Pressure From Big Investor for a Deal

Circuit City Stores Inc.'s largest shareholder called on the consumer-electronics retailer to put itself up for sale, tacitly endorsed an unsolicited bid by Blockbuster Inc. and raised the prospect of financing the acquisition.

The move by HBK Investments LP increases the pressure on Circuit City's board to begin negotiations with Blockbuster. The Dallas hedge fund holds 15.4 million shares, or about 9.1%, of Circuit City, of Richmond, Va., and is the third-largest Blockbuster shareholder, with an 8.5% stake. HBK Managing Director David Haley declined to comment via a spokesman.

"We are very optimistic about the future prospects of a combined company," HBK wrote in a letter to Circuit City Chairman and Chief Executive Philip J. Schoonover. The investment firm said that a majority of Circuit shareholders would favor the company's sale "at a meaningful premium." It also raised the prospect of filing a lawsuit against the board for refusing to provide information to Blockbuster.

A Circuit City spokesman said directors plan to review HBK's requests "and will respond when appropriate." A Blockbuster spokeswoman said, "We agree with the overall assessment in the letter... ."

HBK called on Circuit City's board to "immediately" provide information and begin negotiations, saying "we see little downside to Circuit City's business by allowing Blockbuster to conduct full due diligence." It also called on the board to set up a "competitive bidding process" that could result in a sale of the company "at a substantial premium" to its trading price.

In its letter, HBK said it believed that Blockbuster could finance "a significant portion" of its offer by tapping Circuit City's own balance sheet. The retailer has about $300 million in cash on its balance sheet, $80 million in a pending tax refund and is trying to sell its Canadian operations. HBK added it "might also be prepared to provide financing" for a transaction.

HBK is the second big investor to call on the company to open its books. Last week, Wattles Capital Management, which owns 6.5% of Circuit City shares, also called on the company to allow due diligence. Wattles Capital has nominated a slate of four directors to the Circuit City board and has sought through a proxy submission to have the existing directors replaced at the company's June 24 annual meeting.

Circuit City has refused to provide Blockbuster financial information, saying it didn't believe the video-rental company could "consummate the proposed transaction in light of the difficult current financing environment."

Blockbuster has threatened to abandon its unsolicited offer unless Circuit City makes available nonpublic financial statements. Activist investor Carl Icahn, a large Blockbuster shareholder, has endorsed the deal.

Source: The Wall Street Journal

Big-box retailers undaunted by slow economy

LOS ANGELES (MarketWatch) -- Can big-box retailers keep growing briskly, given the current downturn in the economy? For the most part, yes, but it depends on what's inside the box.

While a select few retailing giants -- namely home-improvement retailers -- have had to curtail expansion plans, others are continuing as if recession talk is nothing more than idle chatter.

Companies like Target Corp. , Costco Wholesale Corp. and Best Buy Co. are carrying on with expansion plans at virtually the same pace as in years past.

"We continue to look at a standard of 100 net new stores a year," Target spokeswoman Anna Goeppinger said. In fact, Target's rate of expansion has quickened, as it built 118 new stores last year and is on pace for 116 this year. In 2005 and 2006, the company added 86 and 88 new stores, respectively.

For the most part, today's retail giants don't suffer in the same way that most retailers do when gasoline prices climb and pocketbooks get pinched. While they may make adjustments, they're big enough to absorb the shock, according to industry experts.

"They really are looking through the economic time because their stores will open after the bad economic times have passed," said Jim McComb, president of retail consultancy McComb Group based in Minneapolis, home to Best Buy and Target headquarters.

The biggest box of all, Wal-Mart Stores Inc. , is curtailing its expansion efforts, although company executives insist that it's not recession-related. The world's biggest retailer is beginning to saturate the North American market, so now it's looking to grow more quickly overseas.

Wal-Mart said as recently as October that it plans to completely phase out new construction of its conventional outlets by fiscal 2009 in favor of its grocery/discount-goods supercenter stores. Development of all new Wal-Mart outlets, including Sam's Club and its group of neighborhood markets, will eventually be cut to 190 by fiscal 2010, down from the 340 new locations that were opened last year.

The subsiding-expansion plans were formulated several years ago and there are no plans to alter them, said Wal-Mart spokesman Phillip Keene, even though economic conditions have worsened since they were outlined six months ago. In fact, the company is stepping up its international expansion efforts at a fairly brisk clip. "There's been no change from this outline," Keene added.

Home-improvement blues

That hasn't been the case with two major big-box home improvement retailers. Home Depot Inc. and Lowe's Cos. are feeling the pinch as the real-estate market drops and new-home building subsides.

Last month, Home Depot scrapped plans to put its first-ever store in San Francisco despite wrangling with reluctant city officials for nearly a decade. In 2005, the city's Board of Supervisors had approved the construction of a Home Depot, but the company backed off in light of rough economic conditions.

"We evaluated the deal and found that it no longer worked for us," said Home Depot spokeswoman Sarah Molinari.

Home Depot has curtailed much of its new-store building throughout North America, cutting back to 55 new stores this year from 100 last year. Capital-expenditure spending will be down 32% from a year ago, to $2.3 billion.

The company is looking to spruce up its existing stores and find ways to improve service, as well as invest in its supply chain, according to Molinari. She also said that much of the curtailing in Home Depot's expansion activity is that like Wal-Mart, the company is reaching market saturation.

At one point, Home Depot was building 200 new stores a year, Molinari elaborated.

That kind of pulse-quickening expansion is unlikely to return, it appears. "I just don't think we're at that point in our business. I think we're past that point," she added.

Lowe's, on the other hand, still is growing rapidly, though it has delayed the opening of 20 new outlets this year in markets where the housing crunch is acute, said spokeswoman Chris Ahearn. Most of the delays are in California and Florida markets.

The company still plans to open 120 other stores, she noted. Lowe's would not reveal precisely where it is holding off on construction. "Again, they're delays. We're not canceling stores," Ahearn said. "We still have an aggressive expansion plan."

Markets that didn't experience a massive housing bubble, such as Texas and Oklahoma, are still ripe for new properties. Lowe's has 1,525 outlets in all.

Urban problem

Home Depot's San Francisco experience exemplifies the dilemma now faced by home-improvement centers. Buying or leasing land in pricey urban areas will cut deeply into their return on investment, said Craig Johnson, president of Customer Growth Partners, a retail consultant.

When economic conditions weaken, that takes a lot of steam out of a Home Depot or Lowe's that is looking to venture outside its comfort zone of suburban strip malls.

"Even in good times, it's a reach," Johnson added.

Companies that seem to be clinging to good times are Best Buy, Costco and Target. Best Buy said that it could stand to build another 500 stores in its various markets, so it plans to open 130 to 160 of them over the next fiscal year. That's about the same pace at which Best Buy has grown over the past several years, according to company spokeswoman Sue Busch.

Best Buy is hoping to use the current economic situation to its advantage and to expand its market share as some of its rivals retreat. "Right now, this is where the focus is," Busch said.

Its main competitor, Circuit City Stores Inc., has seen its stock price tumble, and it has become a takeover target for Blockbuster Inc.

"Smart retailers will use down markets as the most cost-effective time to build market share," Johnson commented. "I think Best Buy is doing a very good job of this."

The same goes for Costco, Johnson said. The membership-warehouse retailer may be seeing its nonfood sales drop, but its food and low-price gasoline have grown more attractive to consumers.

The company plans to open 30 to 35 new units this year and to relocate 10 more stores, spokesman Bob Nelson said.

Costco should continue on that pace in the foreseeable future. "We have no plans to curtail next year," he added. "We're cautiously optimistic that things are going to get better."

Source: MarketWatch.com

Blockbuster weighing options to fund Circuit City bid

Blockbuster Inc (BBI.N) is studying options like using Circuit City's (CC.N) own balance sheet to fund its buyout offer, even as the electronics retailer is asking Blockbuster to prove it can handle an all-cash bid, the Wall Street Journal reported on Monday citing people familiar with the matter.

Blockbuster is also considering using its existing debt facility, possible asset sales and cost savings for the deal, the report said citing the same sources.

Last week, the Dallas-based video rental company offered up to $1.3 billion to buy Circuit City. But the offer has drawn doubts from Wall Street, investors and Circuit City itself over how Blockbuster will fund the bid.

While investors fear that Blockbuster may need to raise new debt or renegotiate its current debt to finance the offer, Blockbuster is hopeful that it has alternative funds to sidestep that possibility, the Journal said, citing people familiar with the situation.

Still, Blockbuster will not go ahead with the offer if it does not like what it sees in Circuit City's financial books, the Journal said in a separate report, citing an interview with Blockbuster Chief Executive Jim Keyes.

Circuit City has not allowed Blockbuster to see its books.

Representatives for both companies were not immediately available for comments.

Source: Reuters

Blockbuster offers $1 billion-plus for Circuit City

NEW YORK (Reuters) - Blockbuster Inc , the No. 1 U.S. movie rental chain, said on Monday it has offered to buy electronics retailer Circuit City Stores Inc for about $1 billion to $1.3 billion in cash.

Blockbuster said it made the unsolicited approach in February, offering $6 to $8 per share. That represents a premium of 54 to 105 percent over Circuit City's closing share price of $3.90 last week, although the troubled retailer's stock traded above $21 last year.

Blockbuster Chief Executive and Chairman Jim Keyes, a former 7-Eleven CEO hired last year with a mandate to turn around Blockbuster, made the offer in a February 17 letter to Circuit City Chief Executive Philip Schoonover, but Blockbuster said Circuit City had so far failed to provide due diligence.

Keyes in the letter said the "new" Blockbuster would be "the most convenient source for media entertainment." Keyes has shifted Blockbuster from a heavy emphasis on online DVD rental to enticing customers through a variety of in-store and electronic offerings, including more emphasis on DVD sales.

Blockbuster said it made the proposal public, "because it believes the shareholders of Circuit City should have the opportunity to participate in determining the destiny of the company."

The combination would result in an $18 billion global retail company that would be "uniquely positioned to capitalize on the growing convergence of media content and electronic devices," the company said in its statement.

"We believe the combination will result in a compelling consumer proposition that will drive significant revenue and margin enhancements as well as costs synergies," Keyes said.

Circuit City was already talked of as a takeover target. Its shares have crashed to multiyear lows in the past year, as it has posted losses.

It has made store changes, including replacing more than 3,000 workers with lower-paid employees -- a move that disrupted its business and upset sales.

Circuit City had an average of 166.5 million shares in its most recent quarter. Its shares closed at $3.90 on the New York Stock Exchange on Friday.

Circuit City and Blockbuster were not available immediately for comment.

Source: GlobeInvestor.com

Circuit City Opening More Stores Despite Loss

RICHMOND,VA-Circuit City Stores is opening 45 to 55 new stores this year, up from the 43 it opened during 2007, despite a $320-million loss during its last fiscal year. Additionally, management does not foresee the near-term closure of any underperforming stores, they said during their fourth-quarter conference call.

Most of the new stores are in the company’s “City” concept format, which average 20,000 sf and focus less on appliances than its other superstores. Of its nearly 700 domestic units 22 are currently City locations.

Same-store sales slid 10.4% year over year during the fourth quarter, which ended Feb. 29. Net sale dropped 7.7%, to just over $3.6 billion.

For the coming year, executives predict at same-stores sales decline in the mid-single digits. The company, which expects to post a first-quarter loss between $180 million and $195 million will not show financial improvement until the back half of the year, said Philip Schoonover, Circuit City’s chairman, president and chief executive officer.

“We remain confident we are on the right track,” he said. The company will focus on improving margins, differentiating its stores from other chains an improving the overall shopping experience for customers, management said.

Source: GlobeSt.

Is Circuit City Up for Sale?

After initially turning a deaf ear to calls for change, Circuit City (CC) suddenly seems to be working double-time to respond to pressure from activist shareholder Mark Wattles.

Wattles, who has built up a 6.5% stake in the company over the past six months, started out calling for a change in the board of directors. But he has stepped up his rhetoric and in recent weeks called for an ouster of CEO Philip Schoonover as well as the entire board. Wattles also suggested that the company hire an investment bank to evaluate the possibility of a takeover offer since the company's turnaround plan (BusinessWeek.com, 2/29/08) has been "disastrous."

Sure enough, rumors swirled on Apr. 7 that Circuit City, the nation's No. 2 electronics retailer, with 677 stores, has hired the investment bank Goldman Sachs (GS) to pursue opportunities for a sale. Neither Circuit City nor Goldman Sachs would comment on that. The speculation followed a letter on Friday from Circuit City's lead director, Mikael Salovaara, to Wattles, in which Salovaara said he would schedule a meeting with Wattles, who heads up Wattles Capital Management. "I like any outcome that will benefit shareholders—whether it's achieved through a management change or by finding a buyer who will turn the company around, that's up to the board," says Wattles.

Shakeup Wanted

What everyone agrees on is that Circuit City needs some kind of jolt. Persistent cost cutting helped the beleaguered Richmond (Va.) company report a profit on Apr. 9 of $4.9 million for its fiscal fourth quarter ended Feb. 29. This ended a streak of five consecutive quarterly losses for the company as it battles increased competition from chief rival Best Buy (BBY), discount retailer Wal-Mart Stores (WMT), and warehouse club operators such as Costco (COST) in an environment where consumers are being very selective with their purchases. Even though the slim profit surprised Wall Street, it's clear the company is struggling to grow and revenue fell 8% to $3.65 billion. Sales at stores open at least a year, a key gauge of a retailer's performance, fell 10.4% in the quarter.

Wattles says he believes that Circuit City has woken up to the fact that a great number of shareholders are bristling for change and that Wattles isn't alone. Recently, other activist shareholders have moved in to acquire big stakes in the company: HBK Investments owns 9.2% of the shares, and D.E. Shaw owns 3%.

At a third-quarter conference call with analysts in December, Schoonover laid out a strategic plan for fiscal year 2009. Rather than a growth strategy, his plan includes "fixing" at least three lines of business. "We remain committed to a strategy that leads to improved sales and profitability in the near and long term," he said in the call. The only growth areas Schoonover was able to cite were the company's Firedog service—which handles computer repairs, home theater installations, and tech support—and its direct-channel business, which includes sales that originate with Circuit City's Web site and call centers. But those areas combined make up less than 20% of the company's overall sales. Circuit City's shares are now trading at 4.43, down 75% in the past year.

Layoffs Hurt Sales

The consumer electronics chain is also feeling the impact of laying off 3,400 highly paid workers, including some of its most experienced salespeople. Items that require more sales-floor expertise, such as higher-margin home theater systems and warranties, subsequently suffered a decline in sales.

Now Circuit City is under pressure to turn around its sales performance at a time when consumers have closed their wallets (BusinessWeek.com, 3/26/08) to big-ticket items and most discretionary spending. Its annual shareholder meeting takes place in June, at which Wattles will have a chance to place his slate of five new directors up for a vote. "Unless their performance changes between now and June, Circuit City knows that there will be material change at the executive or board level," says Wattles.

Goldman Sachs analyst Matthew Fassler says in a recent report that he's encouraged by Wattles' continued activism. Still, he expects Circuit City will have a tough time in a "bleak" environment where consumer spending is weak, TV prices are declining, and there is strong competition from all sides.

Source: BusinessWeek

Circuit City Reinvents Itself Amid Economic Woes

RICHMOND, Va. (AP) ― Dressed in jeans and black T-shirts and armed with touch-screen laptops, Generation Y employees at "The City" help customers choose the latest gadgets.

Far from its old "stack 'em high, watch 'em fly" approach, struggling electronics retailer Circuit City Stores Inc. hopes its smaller concept stores, widespread cost-cutting and new support services will spark a turnaround despite increasing competition and the faltering economy.

"We have a difficult economy, we have fierce competition and we're in the middle of some of the most difficult, deepest work in the transformation," Chief Executive Philip J. Schoonover said in an interview with The Associated Press.

Circuit City hasn't seen a quarterly profit since the second quarter of 2007 and lost more than it had expected in the third quarter of its fiscal 2008, which ended Nov. 30. Now, it anticipates reporting a "modest loss" in the fourth quarter, which included most of the crucial holiday-shopping season.

The nation's No. 2 electronics retailer, Circuit City is not faring well compared to No. 1 Best Buy Co., which reported a 52 percent jump in profits in the quarter ending Dec. 1. Circuit City has rejected takeover bids and seen several key executives leave over the past year. Then, late last month, a major shareholder proposed a clean sweep of the company's board.

Circuit City already has doubled its credit line to $1.3 billion, which Schoonover said gives it the liquidity to continue the turnaround "even if the economy doesn't support us or if competition gets tougher for a period." The credit also puts the company's large vendors at ease, he said.

Vendor relationships are critical because continued sluggish sales could lead vendors to tighten ordering terms or even demand cash from the company upfront, analyst Scot Ciccarelli of RBC Capital Markets wrote in a note to investors.

"The cash is used up and sales mathematically decline because there just isn't as much to sell," he wrote. "This is how even big retailers go out of business."

The biggest challenge now is to stand out in a highly competitive field, analysts said.

Circuit City has been "trying to play catch-up and (find) a way to be something that Best Buy isn't," said Stephen Baker, an analyst with market researcher NPD Group.

"If you can buy an iPod at Wal-Mart, Target, Amazon, Best Buy and Circuit City, there's no way to differentiate," analyst Chris Horvers of Bear Stearns said.

He predicted the new stores will produce higher returns because of their smaller size, which reveals the company's recognition that the smaller electronics of the future will need less selling space, especially as online content replaces DVDs, CDs and video games sold in stores.

Schoonover said changes in the television market -- the Federal Communications Commission has mandated all broadcasters switch digital formats by next February -- also will help drive sales.

"It's going to be a good year for our industry," Schoonover said, calling the switch to digital broadcasting the biggest growth opportunity since he went into consumer electronics 25 years ago. He came to Circuit City in 2004 from Best Buy, where he was executive vice president of customer segments.

Wattles Capital Management, which holds 6.5 percent of the company's stock, is not so sure. Wattles wants to nominate five members for Circuit City's 12-member board and oust all the current directors. Mark J. Wattles, founder of the Hollywood Entertainment video-rental chain, sees little good coming of Circuit City's restructuring and turnaround attempts.

The company's losses ballooned to $207.3 million for the three months that ended Nov. 30, compared with $20.4 million a year before. Its shares have traded between $3.47 and $19.60 in the past 12 months.

A slowing economy led Richfield, Minn.-based Best Buy to cut its 2008 outlook last month. But its profit was $228 million in the most recent quarter.

Analysts seem to be siding with Wattles.

"This is a good shake-up," Horvers said. "It gets the management team as focused as they possibly can be, and having an outside voice is a positive."

While electronics have become necessities rather than luxury items, Baker said selling them remains difficult.

"Even when you're well run, it's difficult to always be spot on," he said. "It's never an easy business no matter how well you're doing."

Schoonover said the company has dealt with its core problems and points in particular to its installation business, called Firedog. The high-margin service has generated $300 million in sales since its inception in September 2006, four years after Best Buy purchased the similar Geek Squad service.

Circuit City lost the crown of No. 1 American consumer electronics chain to Best Buy in the 1990s as Best Buy built bigger stores in better locations and achieved greater economies of scale.

The 22 current "The City" stores, which represent the chain's attempt to follow a different drummer from Best Buy, feature special fixtures and lighting, streamlined product selection and a new feel -- as well as being about two-thirds as big as Circuit City's traditional 30,000-plus-square-foot stores.

Circuit City, which operates more than 680 stores nationwide, plans to open or relocate 50 to 60 stores during fiscal 2009, which began this month -- virtually all of them in the new "The City" format.

"This is better than what they had," 55-year-old Greg Duggan of Richmond said on a recent visit to the concept store here to upgrade his home computer network.

"The old store felt more like Wal-Mart than it did an electronics store," Duggan said. "Frankly, I like it better than Best Buy."

Source: WCCO.com

Circuit City Takeover Effort Gains Steam

A recent change in the makeup of Circuit City’s investors, as well as the proxy fight being mounted by activist investor Mark J. Wattles, are “fueling expectations of a management change” at the CE retail giant, according to an analysis published Monday in the Wall Street Journal.

Wattles went public last month with a plan to oust virtually the entire board of the company, save for the slate of directors that represent his own firm, Wattles Capital Management (WCM.)

The Journal piece pointed out that with major institutional investors selling off stakes in the company and activist investors coming in to replace them who have a history of forcing changes, that Wattles’ bid, set to be heard at the company’s annual meeting in June, could gain significant support.

The Journal quoted executives at two funds that hold stakes in Circuit City, Royal Capital Management LLC and First Pacific Advisors LLC, as being receptive to a change at the top. Wattles, for his part, told the paper that has yet to find “a single shareholder who didn’t agree there needs to be a change in management.”

A Circuit City spokesman told the paper that while they are willing to listen to Wattles’ offer, the company is happy with the current composition of its board.

Last week, Circuit City was dropped from the S&P 500, effective March 28.

Source: DealerScope

Circuit City to run with "The City"

NEW YORK (MarketWatch) -- Circuit City Stores Inc., which lost more than one-quarter of its stock value after posting a wider loss than expected, is hoping that a new store concept two years in development will be a turning point for the company

Circuit City (CC) this year opened seven "The City" stores, including one in New York separated only by a wall from a store operated by its larger and better-performing rival, Best Buy Co.

Best Buy Co., Inc. (BBY) The 20,000-square-foot concept is at least one-third smaller than its standard 30,000 to 35,000 square-foot stores, the company said.

The new concept also will be where it allocates capital spending. Circuit City had 681 U.S. locations at the end of its third quarter and plans to open as many as 60 The City stores next year.

Circuit City, which analysts said has lost sales and traffic to Best Buy and others partly because of aged stores and lackluster customer service, said that the City is cleaner and more brightly lit. The concept also showcases digital cameras and other products in round pods, offering customers a more desirable retail experience.

"The City is more than just a better-looking store," said Chief Executive Philip Schoonover on a conference call Friday. "We have data that show both the customers and associates prefer this experience to our older stores. Customer-shopping patterns have changed a lot. They are looking for full service."

At the City, employees are armed with tablet PCs to help answer customers' questions and are trained to handle different tasks and sell various product categories throughout the store, instead of only being assigned to one product category. Almost all of the fixtures are on wheels and can be easily taken apart to quickly feature different merchandise. In addition, the concept has portable price scanners for customers to check on product information and price.

The new City stores also use more of their footprint. While 400, or under two-thirds of the company's stores only use up to 60% of the stores as selling space, the City takes 85% of its floor.

While the City marks a step in the right direction, some analysts commented that Circuit City has higher priorities. "The initial read on the City stores is that management understands what it takes to be competitive in the industry," said Scott Tilghman of Soleil Securities. "But I don't think it'll be the driver of the turnaround."

On Friday, the retailer reported that its third-quarter loss widened after weakness in product categories from traditional TV sets and desktop computers to more-profitable warranty-service programs. Discounts on flat-panel televisions also dented profit. Circuit City said that it may expect a loss in the fourth quarter, when analysts were expecting profit of 56 cents a share. See full story.

"They have bigger problems than coming up with new store concepts," said Pali Research analyst Stacey Widlitz. "It's innovative, but they need to work on their current store base."

The new stores have yet to prove they can help Circuit City. Joe Feldman, a Telsey Advisory Group analyst whose office is right near the City on Fifth Avenue in New York, said that the Best Buy store next door is generally more crowded and open longer hours.

"They've got a long way to go," Feldman added. "It's going to take a long time to turn things around."

Source: MarketWatch