Hugs, Rating Agencies, US Governments, Circuit City
– Set ’em up for the man…
– Other than Sean Egan’s, they all get F’s
– For those who have forgottem what type of government we really were supposed to have had
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Tag: CC
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Blockbuster Gets "Wattled"
As god is my witness, if Mark Wattles ever buys shares in any company I own shares in, I am selling next day. Who is Mark Wattles you ask? More on that after the news.
Blockbuster announced today in an SEC filing it is on life support:
The risk that we may not successfully complete this refinancing and obtain the related amendment of certain financial covenants included therein, and/or the risk that we may not have adequate liquidity to fund our operations as a result of not meeting our projected financial results, even if the refinancing is completed within the time and upon the terms contemplated, raise substantial doubt about our ability to continue as a going concern.
If we close on our amended credit facility, this amended facility and our other indebtedness will impact our business by, among other things:
• requiring that a substantial portion of our cash flows from operations be used for debt service payments, thereby reducing the availability of cash flows to fund working capital requirements including inventory purchases, capital expenditures, acquisitions and other general corporate purposes;
• making us vulnerable to deterioration in our results of operations and to general adverse economic, market or industry conditions which could impact our ability to make our debt payments;
• limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate including limiting our ability to invest in certain strategic initiatives, consequently placing us at a competitive disadvantage to our competitors; and
• providing liquidity at or near minimum cash levels required to operate the business during certain periods of time during 2009.
We believe that cash on hand, cash from operations and available borrowings under the amended credit facility (assuming that we close on such facility) will be sufficient to fund our anticipated cash requirements for working capital purposes and normal capital expenditures, and that we will remain in compliance with the financial covenants contained in our amended debt agreements, for at least the next twelve months. However, there can be no assurance regarding these matters given the current state of the global economy, which has negatively impacted our ability to accurately forecast our results of operations and cash position, and which may result in deterioration of our revenues beyond what we anticipate. Our current 2009 plan contemplates that worldwide same-store revenues will be lower than what we experienced in the fourth quarter of 2008. Further deterioration would expose us to declining margins as a result of an imbalance between our inventory levels and customer demand. Additionally, if our trade creditors were to impose unfavorable terms on us, it would negatively impact our ability to obtain products and services on acceptable terms and operate our business.
Our independent registered public accounting firm has issued an opinion on our fiscal 2008 consolidated financial statements that includes an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern. As part of the amendment discussed above, and not subject to closing of the amended credit facility, our lenders have agreed to waive the requirement in our credit agreement that our fiscal 2008 audit opinion not include a going concern explanatory paragraph or like qualification.
If we are unable to generate sufficient cash flow from operations to service our indebtedness and remain in compliance with our financial covenants, we would be in default under one or more of our debt agreements, which if not cured or waived, could result in the acceleration of all of our debt due to cross-default provisions contained in such agreements and in certain of our leases.
In such event, we would be required to search for alternative sources of liquidity to refinance the debt, which may not be available to us on acceptable terms, if at all. Our ability to obtain alternative financing would likely be adversely affected because substantially all of our assets have been secured as collateral for our existing debt and because our financial results, substantial indebtedness and credit ratings could each adversely affect the availability and terms of any such financing.
If we were unable to repay our debt upon acceleration, we could be forced to file for protection under the U.S. Bankruptcy Code. In addition, as discussed above, our financing arrangements are relatively short-term in nature. As a result, we will face additional refinancing pressures over the next several years.
Now, Wattles. From a post a few weeks ago:
Wattles, co-founder and former CEO of Hollywood Entertainment and currently the majority owner of the Ultimate Electronics chain, said in a Securities and Exchange Commission filing on Monday, March 16, that he acquired the shares for investment purposes because he believes Blockbuster “does not have a motive to reorganize under Chapter 11.”
Anyone remember Wattles last investment? Yup, now defunct Circuit City.
Mr. Wattles, principal of Wattles Capital Management LLC and the founder of video-rental chain Hollywood Entertainment, took a 6.5% stake in Circuit City, which had at the time about $12 billion in annual sales. Circuit city was evenautally liquidated
Beofre Circuit city Mr. Wattles bought Ultimate Electronics out of bankruptcy, ran it back into bankruptcy, and the bought it out again in 2005. Today it has locations in 9 states and is private, so no word on how it is performing is easily available.
Before that Wattles was best known as the founder of Hollywood Entertainment Corp., which he sold to Movie Gallery Inc. for $1.2 billion in 2005. Good timing. The combined company? You guessed it, ended up in bankruptcy.
Now he will eventually be able to add Blockbuster to his list. This is way beyond bad luck, this is just bad investing, period. As the filing states, there will nothing left should Blockbuster file Chapter 11, all its assets are pledged as collateral. The banks own them.
For those who wish to void the Wattles train wreck in their holdings, you can follow his activity here at the SEC’s website. I suggest the RSS feed as it delivers filings as they are made.
Said Wattles in his Blockbuster filing:
The Class A shares of Common Stock were acquired for investment purposes by the Reporting Person, primarily because of his belief that the Issuer does not have a motive to reorganize under Chapter 11 and that the Issuer will continue as a “going concern” despite the market’s expectation of obtaining a qualified opinion from the Issuer’s auditors in conjunction with the year-end audit.
Given the operating fundamentals of the Issuer combined with the short term of its real estate leases (typically five years) and the aggressive and proactive manner in which the Issuer has managed its store base (including relocations, store closings, reductions in store size and subleases), Mr. Wattles does not believe that the Issuer has a motive to reorganize under Chapter 11.
In addition, regardless of the likelihood of obtaining a “going concern” qualification from its auditors, Mr. Wattles believes the Issuer will be successful in refinancing its revolving bank line of credit, or if it cannot, that it will be able to use cash flow from operations to meet its August repayment obligations and 2009 liquidity needs.
Blockbuster disagrees….
Now to be fair, the Circuit City bankruptcy was not Wattles fault, he did not cause it. What is his fault is buying shares in these companies that are doomed….repeatedly…I just do not get it
Call him by his Biblical name “Mark: Chapter 11”
Disclosure (“none” means no position):None
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Best Buy Web Traffic Still Falling Fast
This is an update to a 3/30 post on web traffic.
As a refresher here are Feburary’s final numbers:
Here is the latest available information on web traffic:
What is important is the 25% fall by Best Buy (BBY) since February. For a company that was supposed to be the primary beneficiary of the Circuit city implosion, at least on the web, it has not happened.
Best Buy is no essentially locked in a three way tie with Sears Holding (SHLD) and JC Penny (JCP) who have climbed in visits. If we include Sears’ Kmart site, Best Buy is a distant third some with some 27% less traffic. Sears new site may have something to do with this.
Amazon (AMZN) has regained it’s lead and Target (TGT) and Wal-Mart remain numbers two and three with stable numbers.
Best Buy has been in a steady web fall for 8 weeks now. Something is happening and it is not good for Best Buy shareholders.
Data from Hitwise
Disclosure (“none” means no position):Long SHLD, WMT, none
Some interesting trends have emerged since February. Remember when looking at these numbers that Circuit City began the liquidation process in late January.
Here is the full month of February 2009 (click to enlarge):
Week ending 3/7: (click to enlarge)
Week ending 3/14: (click to enlarge)
Here is the most recent weeks data from 3/21 (click to enlarge):
Let’s look at numbers 2 and 3, Wal-Mart (WMT) and Target (TGT). They have remained stable since February with very little fluctuation in numbers. Best Buy (BBY), Amazon (AMZN) and Sears (SHLD) is where it gets interesting. Sears has seen a 14% jump in traffic since February, growing each week. Now, my first thought was that this is coming at the expense of Sears’ other owned site, Kmart. A quick check there however shows that Kmart has also seen growth since February albeit less at 6%.
Best Buy has seen traffic fall 15% and Amazon has seen a 22% fall in traffic.
Why?
Now, Best Buy recently reported better than expected numbers for the quarter ending Jan. 2008.
From CNN Money:
In a forecast that seemed to lift investor spirits, the company said it expects to earn $2.50 to $2.90 a share for fiscal 2010. Analysts have forecast a profit of $2.45 a share, according to FactSet.
U.S. sales of mobile phones and accessories saw a triple-digit comparable- store gain while computer repair business saw a low double-digit increase and warranty sales, a low single-digit increase as Best Buy rolled out a premium Geek Squad protection plan. They were among categories that are more profitable for the company, helping to offset less profitable products such as notebook computers, analysts have said.
While the recession, rising job losses and decreased access to credit have all hurt Best Buy, the retailer is expected to gain further market share after its smaller electronics-chain rival Circuit City Stores Inc. filed for bankruptcy protection and liquidated its stores.
It should be noted that the Circuit City liquidation would not be baked into these numbers as it began in earnest after the reported quarters numbers were finished. So, where did the Circuit City web traffic go? The general consensus of the investing community as stated in the above quote was that Best Buy and Amazon would be the main beneficiaries of the Circuit City liquidation.
Based on the above charts, it appears shoppers may have skipped Amazon and Best Buy and gone to Sears. Let’s look closer:
Now, Sears has probably garnered increased internet traffic from it recent appliance push (coupled with people getting tax return money back to buy them) but one cannot escape the oddity of the timing of its traffic increase coupled with the dramatic decreases at both electronics competitors while Wal-Mart and Target held constant.
One also could assume that lawn and garden played a role as both Lowes (LOW) and Home Depot (HD) saw gains. While some of this is surely in the numbers, Sears would not expect to see the same surge as a Home Depot or Lowes because lawn season is coming around. Sears is not as large a player in the field and have smaller offerings than they do, especially when it comes to plants and yard items. The numbers here also show Sears/Kmart outpaced both home Depot and Lowes, not what one would expect unless there was a another reason.
That still leaves us with Sears’ large gain (+20% Sears/Kmart combined) corresponding to the large declines at both Amazon (-22%) and Best Buy (-15%) that cannot be explained away easily. Had they both kept share close or above previous levels, then the Sears gain could be said to be purely appliance/lawn and garden. But they didn’t, so we can’t explain it that way. Sears must be making gains in electronics traffic.
We have essentially 7 weeks of data in these results and no definitive conclusions can be drawn from it. But, the results do seem to be running contrary to what people were expecting to happen when Circuit City finally closed the door and does mean it requires close monitoring.
Now, this all means very little if Sears is not converting this traffic into sales and we will not know this until May as Sears does not report monthly numbers. This trend does bear very close attention. Should it continue, it is is very good news for Sears shareholders as it means the effort Lampert and the rest of the folks there have put into the internet properties may be paying off.
Last weeks data will be out soon and we can check back then …
Data from Hitwise
Disclosure (“none” means no position):Long WMT, SHLD, none
This isn’t the good news people might think it is. So, I was going through some old news and found this (I forgot to write about it the first time).
Blockbuster Inc. (BBI) has received a boost from its former rival Mark Wattles, who purchased a 5.7% stake in the movie rental chain and said he doesn’t believe the Dallas-based company will file for bankruptcy any time soon.
Wattles, co-founder and former CEO of Hollywood Entertainment and currently the majority owner of the Ultimate Electronics chain, said in a Securities and Exchange Commission filing on Monday, March 16, that he acquired the shares for investment purposes because he believes Blockbuster “does not have a motive to reorganize under Chapter 11.”
Anyone remember Wattles last investment? Yup, now defunct Circuit City.
Mr. Wattles, principal of Wattles Capital Management LLC and the founder of video-rental chain Hollywood Entertainment, took a 6.5% stake in Circuit City, which had at the time about $12 billion in annual sales. Circuit city was eventually liquidated
Before Circuit city Mr. Wattles bought Ultimate Electronics out of bankruptcy, ran it back into bankruptcy, and the bought it out again in 2005. Today it has locations in 9 states and is private, so no word on how it is performing is easily available.
Before that Wattles was best known as the founder of Hollywood Entertainment Corp., which he sold to Movie Gallery Inc. for $1.2 billion in 2005. Good timing. The combined company? You guessed it, ended up in bankruptcy.
Now Blockbuster.
Blockbuster Inc. Chief Executive Jim Keyes recently an independent auditor’s doubts about its ability to continue as a going concern shouldn’t hamper its day-to-day operations at a time when so many other companies are having difficulty coping with the economic crisis. “Given the tightness of the credit markets these days, we are not going to be alone,” he said on a conference call. Blockbuster has spent “a lot of time” explaining its liquidity position to movie studios and various suppliers, Keyes explained.
He also that the “single biggest driver” weakening U.S. DVD rentals in the last two months been lackluster new release titles. In last year’s first quarter, new DVD titles included “Enchanted” and “I Am Legend,” while debuting releases this year have been “good but not great” in comparison, Keyes said during a recent conference call. “The good news is that we’re seeing unprecedented theatrical strength,” he added, pointing out that current box office hits like “Watchmen,” “Slumdog Millionaire” and “Paul Blart: Mall Cop” will be available on DVD in a few months, driving greater domestic DVD rentals.
What effect? Blockbuster swung to a fourth-quarter loss on a $435 million non-cash charge related to a decline in the value of its assets. The company also said three of its largest creditors have agreed to extend its revolving credit facility through Sept. 30, 2010, alleviating concerns about a debt payment that would have been due this August. The company said it lost $362.7 million, or $1.89 a share in the fourth quarter of 2008. In the same quarter a year earlier, it posted a profit of $38.1 million, or 20 cents a share. Excluding items, the company would have earned $80.4 million, or 40 cents a share, in the latest three months. Revenue fell to $1.38 billion from $1.57 billion, as the quarter included one less week than the fourth quarter of 2007.
Keyes did not comment or was not asked why Netflix (NFLX) “is kicking his ass”. Blockbuster has drifted aimlessly under Keyes from an attempt to go after Netflix through the mail, a half hearted streaming online push and now some bizarre Apple (AAPL) envy induced store concept.
I’m not sure what Wattles thinks he can do at Blockbuster. If he wanted cheap real estate he should have just picked up some of Circuit City’s locations. Blockbuster is dying…it just does not know it.
This whole thing is a bit incestuous if you remember correctly because it was Keys who offered $1 billion for Circuit City just months before it was worth, um ZERO.
If history is a guide…..it is only a matter of time before we see another “11” associated with a Wattles investment.
Disclosure (“none” means no position):none
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Circuit City: An Inexplicable Chart
Just looking at this chart, it mystifies the imagination how Circuit City (CC) ended up liquidating..
Take a look…
How does a company that has 20% market share of internet traffic, NOT dominate its industry? How?
Former CEO Phil Schoonver should be imprisoned at Abu Grab, at the very least…
The harsher penalties ought to go to the Board that oversaw his willful shareholder obliteration.
I’m think the prison in “Midnight Express“
Disclosure (“none” means no position):None…ever…. thank god…
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Monday’s Links
Bitches, Circuit City, Madoff, Leveraged ETF’s
– I can’t stand these two…
– Liquidation agreement
Circuit City Liqudation Agreement
– SEC Complaint
SEC complaint against Bernard L (Bernie) Madoff
– Here is a list
Disclosure (“none” means no position):
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Circuit City To Be Liquidated..
35,000 folks will lose their jobs..they can thank former CEO Phil Schoonover. What is sad is that it did not have to happen, there were many opportunities to save it. What Schoonover did should be criminal…..criminal…
The News:
Circuit City Stores Inc. says it has reached an agreement with liquidators to sell the merchandise in its 567 U.S. stores after failing to find a buyer or a refinancing deal.
The second-biggest electronics retailer in the nation says in court papers it has appointed Great American Group LLC, Hudson Capital Partners LLC, SB Capital Group LLC and Tiger Capital Group LLC as liquidators.
Calls to the Richmond, Va.-based company and the liquidators were not immediately returned.
Circuit City filed for Chapter 11 bankruptcy protection in November. U.S. Bankruptcy Judge Kevin Huennekens gave the company permission to liquidate if a buyout was not achieved.
In June of 2007 I said:
“As a trade, any good news could vault shares up immediately. But, I do not see the conditions that could create that good news anytime soon. Maybe they could get bought out and that would cause shares to jump, but, I am reluctant to invest on the prayer someone rescues them. An Eddie Lampert, based on past history would just be as likely to wait for these buffoons to run it into bankruptcy and buy it there even cheaper than now. Why pay a premium to the current price when in bankruptcy he could get it for a fraction of it?
At their current rate CC will be out of cash before Thanksgiving and then the fun really starts. This assumes they do not start ramping up debt to pay for operations and also assumes no further economic slowdown. Should the economy slide even more, see ya…”
Then CEO Schoonover then fired good employees to save costs causing sales to plummet, ramped up debt, lowered bonus levels for his hand picked executives, Spurned a possible takeover, spurned an official offer from Blockbuster (BBI), was actually interviewed by the WSJ about “how to execute a turnaround”, tried some new platforms and had one of the most visited web site during the 2007 holiday season but due to high prices could not convert them to sales.
Today is the result….sad for those losing jobs..
Disclosure (“none” means no position):None
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Wedneday’s Links
Circuit City, Chanos, Wal-Mart, Oil
– Still going higher
Disclosure (“none” means no position):
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This has been a long time coming..
In October 2007, I wrote a post “Circuit City on the Bankruptcy Express“. While they did not take the “express” there, they still got to their ultimate destination.
Circuit City Stores Inc. (CC) filed for Chapter 11 bankruptcy Monday in Virginia’s Eastern District bankruptcy court.
The Richmond, Va., consumer electronics retailer had long suffered under competition from its larger rival, Best Buy Co. (BBY).
Circuit City listed its amount of assets at $3.4 billion and its total debts at $2.3 billion, according to a bankruptcy document filed with the court. About 168 million shares of its common stock are held by about 4,463 shareholders, according to the filing.
The company said it had has more than 100,000 creditors. The largest single debt listed in the filing is $118.8 million owed to Hewlett-Packard Co. (HPQ).
Disclosure (“none” means no position):None
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Just because CEO Phil Schoonover is gone, it doesn’t mean the people who hired him and kept him there can’t continue to bury this thing…
Circuit City Stores Inc. is considering a plan to close at least 150 stores and cut thousands of jobs, as an alternative to filing for bankruptcy-court protection, said people familiar with the company.
Earlier this month, the nation’s No. 2 electronics retailer by sales hired Skadden, Arps, Slate, Meagher & Flom LLP — the law firm that oversaw the Chapter 11 reorganization of Kmart — as its bankruptcy counsel, according to several people familiar with the matter.
Circuit City also retained FTI Consulting Inc. to develop a turnaround plan and investment bank Rothschild Inc. to guide talks with banks and secure emergency financing, these people said.
What bank in their right mind right now would loan them a penny? Who?
In June of 2007 in a post that speculated on the possibility of a Circuit City (CC) bankruptcy, I said “if the economy slides any further….see ya’..”
In Sept. of 2007 I said they were on the “Bankruptcy Express”
Now, Circuit City did try to help the management that ran it into the ground by lowering the price points on their stock options in a move to keep this incompetent bunch happy. Stunningly, the performance of the company did not improve. Please note the sarcasm..
Nothing has changed from either post. The good news? The company still does have a good brand and whoever buys it in bankruptcy has a great opportunity to revitalize it. The price that will be paid will be minimal as the competition for it in the current environment will be minimal. That gives a buyer a tremendous opportunity for success. The bad news? If you are a current shareholder you will get nothing. Sorry…
Disclosure (“none” means no position):none
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Monday’s Links
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Another WSJ Hatchet Job on Sears
It’s been a while since the last one…
Even after coming way off its highs of last year, Sears’ stock is trading at the nosebleed valuation of more than 26 times this year’s expected earnings. In comparison, discount retailers such as Wal-Mart Stores (WMT) and Costco Wholesale (COST) — both of which reported higher same-store sales in September, even as consumers deserted other stores — are trading in the mid-to-high teens. Not to mention lower profile retailers like TJX Cos. (TJX), whose chains draw brand-conscious consumers looking for a bargain, which is trading at a multiple of about 11.
Part of the reason for the anomaly could be Sears’ inclusion on the no-short sale list; indeed Thursday, after the ban expired, Sears fell sharply. Sears also benefits from a relatively small float, as several loyal investors have stuck by controlling shareholder Eddie Lampert. And the company has been steadily buying back stock, even as cash generation has slumped.
At some point, though, the faith in Mr. Lampert displayed by these investors may start to crumble. Recessions are the ultimate in Darwinian exercises for retailers. Every time there’s a severe economic downturn, a smattering of big and small retail chains go bankrupt. Recent months have already seen a handful of specialty chains file for Chapter 11 bankruptcy protection, including Steve & Barry’s, Linens ‘n Things and Mervyn’s. Others, like electronics chain Circuit City (CC) and drug store operation Rite Aid Corp. (RAD), face serious challenges. Sears’ prospects in an extended downturn aren’t much better.
OK…So let’s for a minute just sit back and reflect the inclusion of cash rich (it currently holds more cash that all the other combined), low debt (it currently has less than any of the other did) Sears with any of the above retailers. Why not look at is next to Macy’s (M), Kohl’s (KSS), JC Penny (JCP) or even Home Depot (HD)? My guess is the article would then have been far less dramatic or interesting as people would have come to the logical, “well, all of retail is suffering now” conclusion.
What the author alludes to but chooses not to focus on is that unlike at the above, Sears is still churning out profits and cash flow. He does note that Sears tumbled today after the “no short ban” was lifted. A 680 point drop on the Dow today would lead some to believe that perhaps this was not a “Sears specific event”?
The Sears shareholder base. This has merit. 86% of the shares are held by investors who typically have a holding period measured in years. In fact, Chairman Lampert himself controls 51% and isn’t going to be selling anytime soon. So, aside from the “naked shorting”, of Sears shares (IS THE SEC’S CHRIS COX STILL ON THE JOB?), in any given day only about 14% of the shares are going to be sold by anyone other than those who view purchasing a stock as “ownership”, not trading paper.
That math ought to lead anyone to conclude that there isn’t a ton of downside to shares, or , if there is, based on the reputations of the investors that hold shares, they most likely will eagerly be snapping them up.
Sears is a complicated investment both due to the various businesses and parts it has, and its evolving ownership base. A true “why isn’t it going down” analysis really cannot honestly be done in a pithy 3 paragraph piece…
When you have a stable investor base that is not inclined to sell, many of the usual daily market machinations and their effect of the stock price tend to not matter as much. That by the way, is a good thing…
I just may have avoided the 23% drop this month in the Dow..
Disclosure (“none” means no position):Long SHLD, none
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Circuit City: Bring Out Your Dead!!
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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