Anyone remember the famous Monty Python skit? See it below
Circuit City (CC) is the old guy on the 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 announced 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 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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4 replies on “Circuit City: Bring Out Your Dead!!”
Todd – I have to wonder how Eddie would finance such a move given the current financial climate. Banks aren’t lending to anyone and SHLD’s debt rating just above junk isn’t helping either. He’d either a.) have to pay cash, or b.) take on debt at less than desirable rates to finance the transaction. Given the credit markets, b.) is unlikely to happen and I’m not sure a.) is a good use of cash unless doing so creates greater cash flow.
I have to wonder about SHLD’s cash position and focus on FCF. Yes, the company has (had) about $1B in cash, enough to fund the business for the immediate time period. But debt isn’t a bad thing, perse. It helps fund growth, capital improvements, and acquisitions; if the company had some semblance of debt, it could actually reduce its cash outlay to support daily operations.
Given that we’re heading into a significant downturn, a fact unlikely to help a struggling retailer such as Sears (after all, you said consistently Sears will turn when housing turns; housing isn’t turning anytime soon), I have to wonder about the company’s viability. If it has a difficult holiday and doesn’t generate enough cash flow to subsidize the other 9 months of its business, where will that leave the company? It will have to use cash to fund the business and keep the business afloat. Otherwise, it would have to tap the credit markets to take on debt, sell off assets, or look to merge. Would like your thoughts here.
Prediction – this holiday season will be one of the worst in recent memory. A number of retailers will be on the brink of bankruptcy as a result and retail real estate value will decline significantly. I believe ESL will look to add to the SHLD portfolio, but with smaller retailers than previously thought (ie WSM, not HD). One other option – ESL is forced to pull the trigger on combining with AZO sooner than anticipated.
bill,
been a while, nice to hear from you. i don’t think lampert would do it, i was just commenting on the rumors last year.
that being said, the company has a market cap of $125 million right now and less than that in BK. Lampert could, if he wanted to pick it up or buy a massive controlling stake should he want to..
i just think he won’t do much now
couldn’t agree more. there just isn’t a lot value there from a real estate perspective. no real merchandising or services differentiation (firedog is a failure; it’s largest revenue stream was wiring new construction). it does have a billion dollar website and call center and i could definitely see esl making a run there, but integrating the two would be costly, esp. considering he’s invested a significant amount of capital into building sears.com. sidenote – the current vp or ecommerce, the president of appliances, and the president of electronics all came from circuit city. draw your own conclusions…
on the broader whole, were do you value in the current sector? i believe wmt is a buy; they’re not going anywhere. i also like amzn – alot. even at the lofty valuation…
interesting about the ecommerce team
i wouldn’t touch anything but shld, bgp and wmt