You know you've already made a CC thread right?
Posted by Happy Valley on :
Reuters Blockbuster offers over $1 billion for Circuit City Monday April 14, 7:37 am ET By Aarthi Sivaraman and Sue Zeidler
NEW YORK/LOS ANGELES (Reuters) - Blockbuster Inc (NYSE:BBI - News) said on Monday it has offered up to $1.3 billion for electronics retailer Circuit City Stores Inc (NYSE:CC - News), in the movie rental chain's most aggressive step yet to recast itself as an entertainment hub. ADVERTISEMENT
The offer of $6 to $8 per share represents a premium of up to 105 percent on Circuit City's shares' closing price of $3.90 on Friday. The ailing retailer's stock traded above $19 within the last year.
Blockbuster said it made the offer in a February 17 letter to Circuit City Chief Executive Philip Schoonover, but decided to go public with the offer after Circuit City did not provide access to its books.
Blockbuster Chief Executive and Chairman Jim Keyes, a former CEO of 7-Eleven, was hired last year with a mandate to turn around the company. Keyes has shifted Blockbuster's emphasis from purely DVD rental markets, encapsulating both traditional and online rentals, to in-store sales of DVDs and other media such as video games.
He said the "new" Blockbuster would be "the most convenient source for media entertainment."
Blockbuster, which has 7,800 stores worldwide and a market capitalization about $80 million below Circuit City's $656.6 million, said it expects a profit of $30 million in the quarter that ended April 6.
Since taking the helm last July, Keyes has touted the long-term potential in the chain's brick-and-mortar stores and has pulled back on the company's aggressive and costly rivalry with Netflix Inc (NasdaqGS:NFLX - News) for the online DVD rental market.
The restructuring has already started to help Blockbuster, which posted a narrower-than-expected loss in the fourth quarter and recently said it expects to be profitable in 2008.
In addition to stiff competition from Netflix, Blockbuster has also had to contend with the increased consumer adoption of video-on-demand services and movie downloads.
Blockbuster bought Movielink.com last year and has said it plans to make movie downloading to televisions available.
Circuit City has been in a proxy fight with industry investor Mark Wattles, who has demanded that the company remove CEO Schoonover immediately and nominated five people for election to its board at this year's annual meeting.
Wattles has said that Circuit City not only needs new management but should also focus on overhauling its existing stores and consider selling itself.
Circuit City has seen its stock price crash to multiyear lows in the past year, and has posted losses in the past year. It has replaced more than 3,000 workers with lower-paid employees -- a move that disrupted its business and upset sales.
For the first quarter, Circuit City expects a loss from continuing operations before income taxes of $180 million to $195 million -- bigger than the one it posted in the comparable quarter a year ago.
The retailer has said it does not expect year-over-year performance to improve until the second half of the fiscal year.
Circuit City and Blockbuster were not available immediately for comment.
(Reporting by Aarthi Sivaraman and Sue Zeidler; Editing by Quentin Bryar and Quentin Webb)
Posted by eddy on :
Yes!!!!!!!!!!!!
Posted by invester on :
quote:Originally posted by Mortimer: You know you've already made a CC thread right?
I made the thread about it being bought out on the .11 and up page. Sweet call!!!!
Posted by Mortimer on :
I suppose this is good news, but Blockbuster? Don't they have their own problems to worry about these days?
Maybe Best Buy will counter a bid soon. Who else do you guys think are good candidates to acquire CC?
Posted by Happy Valley on :
The real question is why has Schoonover kept a lid on this for almost 2 months???This pos has gots to go...jmho
Posted by invester on :
quote:Originally posted by Mortimer: I suppose this is good news, but Blockbuster? Don't they have their own problems to worry about these days?
Maybe Best Buy will counter a bid soon. Who else do you guys think are good candidates to acquire CC?
Mark Wattles. He bought Ultimate Electronics and turned it around. This would only expand his brand.
Posted by Mortimer on :
Agreed. Shoonover is a pos, but I'm realizing it's better to figure out the "game" he (as well as Walters) is playing to "play" this stock yourself. I'm beginning to wonder if Shoonover did all this cutting in the first place with the intention all along of positioning the company to get acquired. It wouldn't surprise me.
As far as other potential bidders, RadioShack comes to mind. They could convert the CC stores to RadioShack Superstores?
Posted by invester on :
quote:Originally posted by Mortimer: Agreed. Shoonover is a pos, but I'm realizing it's better to figure out the "game" he (as well as Walters) is playing to "play" this stock yourself. I'm beginning to wonder if Shoonover did all this cutting in the first place with the intention all along of positioning the company to get acquired. It wouldn't surprise me.
As far as other potential bidders, RadioShack comes to mind. They could convert the CC stores to RadioShack Superstores?
Or Best Buy could just take them out once and for all.
Posted by Mortimer on :
quote:Originally posted by invester: Or Best Buy could just take them out once and for all.
I can't believe I failed to think of that one when the company I work for did just that to one of their main competitors.
Posted by invester on :
They have 300m in cash, and 1b in Real Estate. What’s the business worth? They generate billions in revs. and had a .17 beat in earnings expectations. To cheap.
Posted by invester on :
Best Buy might have antitrust issues though.
Posted by Happy Valley on :
Would such a deal even be permitted???I guess they could argue retail chains like WMT, TGT, RSH etc. could provide alternative options for electronics consumers...Just thinking out loud here...
Posted by invester on :
Look at this balance sheet. 3.7 billon in assets. 300 million in cash. There offering 1.3 billion for the company. The business had 11.7 billion in revenues last year. You could dismantle the company for at least 3 billion. That equates to over $17 a share. $6 offer is way to cheap. There will most assuredly be other bidders.
CC : NYSE Industry: Specialty Retailers
Balance Sheet Quarterly Annual 2008 2/29/08 2007 2/28/07 2006 2/28/06 2005 2/28/05 2004 2/29/04 ASSETS Cash & ST Investments 297 739 838 1,005 783 Receivables (Net) -- 425 226 173 580 Total Inventories -- 1,636 1,698 1,460 1,517 Raw Materials -- $0 $0 $0 $0 Work in Progress -- $0 $0 $0 $0 Finished Goods -- 1,636 1,698 1,460 1,517 Progress Payments & Other -- $0 $0 $0 $0 Prepaid Expenses -- -- -- 19 -- Other Current Assets 2,142 82 71 30 39 Current Assets - Total 2,440 2,884 2,833 2,686 2,919 Long Term Receivables -- $0 $0 $0 $0 Investment in Unconsolidated Subsidiaries -- $0 $0 $0 $0 Other Investments -- $0 $0 $0 $0 Property, Plant & Equipment - Net 1,037 921 839 739 586 Property, Plant & Equipment - Gross -- 2,221 2,019 1,843 1,607 Accumulated Depreciation -- 1,300 1,179 1,104 1,021 Other Assets 269 171 298 291 29 Deferred Charges -- -- 26 -- -- Tangible Other Assets -- 30 44 44 29 Intangible Other Assets 136 141 254 247 -- Total Assets $3,746 $3,975 $3,971 $3,716 $3,534 LIABILITIES Accounts Payable -- 1,204 1,053 962 880 Short Term Debt & Current Portion of Long Term Debt 12 7 29 $1 1 Accrued Payroll -- 99 85 -- -- Income Taxes Payable -- -- 76 72 161 Dividends Payable -- -- -- -- -- Other Current Liabilities 1,594 404 380 229 135 Current Liabilities - Total 1,606 1,714 1,622 1,264 1,177 Long Term Debt 57 51 52 12 23 Provision for Risks and Charges -- -- -- -- -- Deferred Taxes -- (32) (98) (74) (99) Deferred Income -- 76 79 230 98 Deferred Tax Liability in Untaxed Reserves -- -- -- -- -- Other Liabilities 580 375 361 196 111 Total Liabilities $2,243 $2,184 $2,016 $1,628 $1,310 SHAREHOLDERS’ EQUITY Non-Equity Reserves -- $0 $0 $0 $0 Minority Interest $0 $0 $0 $0 $0 Preferred Stock $0 $0 $0 $0 $0 Common Equity 1,503 1,791 1,955 2,087 2,224 Common Stock -- 85 87 94 102 Capital Surplus -- 344 458 721 923 Revaluation Reserves -- -- -- -- -- Other Appropriated Reserves -- (12) (0) -- -- Unappropriated (Free) Reserves -- -- -- -- -- Retained Earnings -- 1,336 1,365 1,247 1,199 Equity in Untaxed Reserves -- -- -- -- -- ESOP Guarantees -- -- -- -- -- Unrealized Foreign Exchange Gain(Loss) -- 37 45 25 -- Unrealized Gain(Loss) on Marketable Securities -- $0 -- -- -- Treasury Stock -- $0 $0 $0 $0 Total Liabilities & Shareholders Equity $3,746 $3,975 $3,971 $3,716 $3,534 Common Shares Outstanding -- 171 175 188 204
2008 Q4 2/29/08 2008 Q3 11/30/07 2008 Q2 8/31/07 2008 Q1 5/31/07 ASSETS Cash & Short Term Investments 297 483 424 364 Receivables (net) -- 593 408 449 Inventories - Total -- 2,592 1,833 1,746 Prepaid Expenses -- -- -- -- Other Current Assets 2,142 105 181 109 Current Assets - Total $2,440 $3,773 $2,847 $2,668 Investment in Unconsolidated Subsidiaries -- $0 $0 $0 Property, Plant & Equipment - Net 1,037 1,025 974 942 Property, Plant & Equipment - Gross -- 2,442 2,355 2,293 Accumulated Depreciation, Depletion & Amortization -- 1,417 1,381 1,351 Other Assets 269 198 189 191 Intangible Assets (supplementary) 136 161 154 153 Total Assets $3,746 $4,995 $4,011 $3,801 LIABILITIES Accounts Payable -- 2,371 1,403 1,166 Other Accrued Expenses -- 505 429 410 Taxes Payable -- 11 21 11 Short Term Debt & Current Portion of Long Term Debt 12 29 8 12 Other Current Liabilities 1,594 63 $0 $0 Current Liabilities - Total $1,606 $2,980 $1,862 $1,599 Deferred Taxes -- 23 (27) (27) Long Term Debt 57 52 51 49 Other Liabilities 580 503 488 480 Total Liabilities $2,243 $3,557 $2,374 $2,100 SHAREHOLDERS’ EQUITY Non-Equity Reserves -- $0 $0 $0 Minority Interest $0 $0 $0 $0 Preferred Stock $0 $0 $0 $0 Common Equity 1,503 1,439 1,637 1,700 Common Stock -- 84 84 84 Capital Surplus -- 315 311 307 Retained Earnings -- 983 1,197 1,267 Other Appropriated Reserves -- -- -- -- Treasury Stock -- $0 $0 $0 Total Liabilities & Shareholders Equity $3,746 $4,995 $4,011 $3,801
() = Negative Values In millions except per share data.
Posted by R1 Man on :
Circuit City's days are numbered. They have eliminated some of their lines of business in the past. Didn't they sell appliances....they don't now as far as I know. They barely sell computers, camera's, video cameras and computer software and car audio. What they do sell a lot of is TV's, some projectors and not sure about the home stereos. Now movies and games.....not sure. But to me this company is in a huge rut that they can't get out of. The only thing that saves them is the Black Friday sales.
WMT....Walmart, well they are getting into the flat panel TV's now and soon they will take a huge bite out of that segment. Think, Sams sells high end appliances....they could really sell some others if they want. Its a different feeling when you go somewhere like Sears and the salesman is pressuring you to buy compared to Walmart where they could care less.....but Walmart has no help to answer questions because they rob america's economy and boosts China's. But if they invest in both CC and Best Buy's products....they would take them both out!!
Posted by invester on :
I'm merely speaking from an asset point of view. They have 1b in Real Estate, 300m in Cash, and another 2b or so in inventory, trucks, etc..... The break-up value is so much higher than the proposed $6-$8 share. I think it will sell around $12 which will be 2 billion.
Posted by bilgert on :
Looks to be a very good price here; kind of falling on its ass now since the BBI deal looks to be falling apart and the dividend's been cut.
I picked up the August calls ($5 strike) at .20. Seems like a reasonable hedge.
Posted by SoAngel on :
3.03 - 52wk low.
Posted by metal1 on :
BBI deal is off..
Blockbuster(BBI - Cramer's Take - Stockpickr) on Wednesday withdrew its $XX bid for Circuit City(CC - Cramer's Take - Stockpickr), citing "market conditions."
The video rental chain in April said it had two months earlier offered to acquire Circuit City for at least $6 a share, but the electronics chain showed no interest. Circuit City later opened its book to Blockbuster, but after the completion of initial due diligence, the video chain said it was dropping the effort.
"We continue to believe in the strategic merits of a consumer retail proposition that would bring media content and electronic devices together under one brand," Blockbuster Chairman and CEO Jim Keyes said in a company statement. "We will pursue this strategy through our Blockbuster stores as a way to diversify the business and better serve the entertainment retail segment."
Circuit City called its strategic review "an active and ongoing process."
"The board's review was not dependent on Blockbuster's participation," Chairman, President and CEO Philip Schoonover said in a company statement. "We are diligently working with the parties involved in the process, and intend to continue our thorough approach until such point as the board determines upon a particular strategic course of action."
The board does not have a deadline for completing the review, Schoonover said.
Billionaire activist investor Carl Icahn, who also was reviewing Circuit City's books, in May said he was prepared to step in and buy the chain himself, should Blockbuster's bid falter.
Many have questioned the value of a merger between the two struggling companies. Blockbuster faces significant competition from movie rental-by-mail company Netflix(NFLX - Cramer's Take - Stockpickr), while Circuit City has seen Best Buy(BBY - Cramer's Take - Stockpickr) continue to dominate in consumer electronics sales.
Posted by BooDog on :
LOD .62 now .67
Posted by Rockster on :
interesting... I have seen some poor location selections by Circuit City.. with some huge loses because of. however .67 cents is quite low!!
a 114 milliion market cap!
Posted by BooDog on :
playin for a bounce only
Posted by Peaser on :
Bankruptcy loomin'?
Posted by Rockster on :
well its at bankruptcy prices...just like rite aid.. .98
how could the price of cc be so low if it does have so many assets... im going to look at this closer
I bought some long term calls last week. whats the play here?
Posted by Rockster on :
quote:Originally posted by invester: Look at this balance sheet. 3.7 billon in assets. 300 million in cash. There offering 1.3 billion for the company. The business had 11.7 billion in revenues last year. You could dismantle the company for at least 3 billion. That equates to over $17 a share. $6 offer is way to cheap. There will most assuredly be other bidders.
CC : NYSE Industry: Specialty Retailers
Balance Sheet Quarterly Annual 2008 2/29/08 2007 2/28/07 2006 2/28/06 2005 2/28/05 2004 2/29/04 ASSETS Cash & ST Investments 297 739 838 1,005 783 Receivables (Net) -- 425 226 173 580 Total Inventories -- 1,636 1,698 1,460 1,517 Raw Materials -- $0 $0 $0 $0 Work in Progress -- $0 $0 $0 $0 Finished Goods -- 1,636 1,698 1,460 1,517 Progress Payments & Other -- $0 $0 $0 $0 Prepaid Expenses -- -- -- 19 -- Other Current Assets 2,142 82 71 30 39 Current Assets - Total 2,440 2,884 2,833 2,686 2,919 Long Term Receivables -- $0 $0 $0 $0 Investment in Unconsolidated Subsidiaries -- $0 $0 $0 $0 Other Investments -- $0 $0 $0 $0 Property, Plant & Equipment - Net 1,037 921 839 739 586 Property, Plant & Equipment - Gross -- 2,221 2,019 1,843 1,607 Accumulated Depreciation -- 1,300 1,179 1,104 1,021 Other Assets 269 171 298 291 29 Deferred Charges -- -- 26 -- -- Tangible Other Assets -- 30 44 44 29 Intangible Other Assets 136 141 254 247 -- Total Assets $3,746 $3,975 $3,971 $3,716 $3,534 LIABILITIES Accounts Payable -- 1,204 1,053 962 880 Short Term Debt & Current Portion of Long Term Debt 12 7 29 $1 1 Accrued Payroll -- 99 85 -- -- Income Taxes Payable -- -- 76 72 161 Dividends Payable -- -- -- -- -- Other Current Liabilities 1,594 404 380 229 135 Current Liabilities - Total 1,606 1,714 1,622 1,264 1,177 Long Term Debt 57 51 52 12 23 Provision for Risks and Charges -- -- -- -- -- Deferred Taxes -- (32) (98) (74) (99) Deferred Income -- 76 79 230 98 Deferred Tax Liability in Untaxed Reserves -- -- -- -- -- Other Liabilities 580 375 361 196 111 Total Liabilities $2,243 $2,184 $2,016 $1,628 $1,310 SHAREHOLDERS’ EQUITY Non-Equity Reserves -- $0 $0 $0 $0 Minority Interest $0 $0 $0 $0 $0 Preferred Stock $0 $0 $0 $0 $0 Common Equity 1,503 1,791 1,955 2,087 2,224 Common Stock -- 85 87 94 102 Capital Surplus -- 344 458 721 923 Revaluation Reserves -- -- -- -- -- Other Appropriated Reserves -- (12) (0) -- -- Unappropriated (Free) Reserves -- -- -- -- -- Retained Earnings -- 1,336 1,365 1,247 1,199 Equity in Untaxed Reserves -- -- -- -- -- ESOP Guarantees -- -- -- -- -- Unrealized Foreign Exchange Gain(Loss) -- 37 45 25 -- Unrealized Gain(Loss) on Marketable Securities -- $0 -- -- -- Treasury Stock -- $0 $0 $0 $0 Total Liabilities & Shareholders Equity $3,746 $3,975 $3,971 $3,716 $3,534 Common Shares Outstanding -- 171 175 188 204
2008 Q4 2/29/08 2008 Q3 11/30/07 2008 Q2 8/31/07 2008 Q1 5/31/07 ASSETS Cash & Short Term Investments 297 483 424 364 Receivables (net) -- 593 408 449 Inventories - Total -- 2,592 1,833 1,746 Prepaid Expenses -- -- -- -- Other Current Assets 2,142 105 181 109 Current Assets - Total $2,440 $3,773 $2,847 $2,668 Investment in Unconsolidated Subsidiaries -- $0 $0 $0 Property, Plant & Equipment - Net 1,037 1,025 974 942 Property, Plant & Equipment - Gross -- 2,442 2,355 2,293 Accumulated Depreciation, Depletion & Amortization -- 1,417 1,381 1,351 Other Assets 269 198 189 191 Intangible Assets (supplementary) 136 161 154 153 Total Assets $3,746 $4,995 $4,011 $3,801 LIABILITIES Accounts Payable -- 2,371 1,403 1,166 Other Accrued Expenses -- 505 429 410 Taxes Payable -- 11 21 11 Short Term Debt & Current Portion of Long Term Debt 12 29 8 12 Other Current Liabilities 1,594 63 $0 $0 Current Liabilities - Total $1,606 $2,980 $1,862 $1,599 Deferred Taxes -- 23 (27) (27) Long Term Debt 57 52 51 49 Other Liabilities 580 503 488 480 Total Liabilities $2,243 $3,557 $2,374 $2,100 SHAREHOLDERS’ EQUITY Non-Equity Reserves -- $0 $0 $0 Minority Interest $0 $0 $0 $0 Preferred Stock $0 $0 $0 $0 Common Equity 1,503 1,439 1,637 1,700 Common Stock -- 84 84 84 Capital Surplus -- 315 311 307 Retained Earnings -- 983 1,197 1,267 Other Appropriated Reserves -- -- -- -- Treasury Stock -- $0 $0 $0 Total Liabilities & Shareholders Equity $3,746 $4,995 $4,011 $3,801
() = Negative Values In millions except per share data.
here you go.. they have Accounts Payable -- 2,371 1,403 1,166
very high compared to their cash situation of 300m and receivables.
They are not paying their bills
Posted by Rockster on :
Receivables (net) -- 593 408 449 Cash & ST Investments 297 739 838 1,005 783 Cash position less than 30% of four years ago trending down.
Posted by Rockster on :
Financial Condition
At August 31, 2008, Circuit City had cash, cash equivalents and short-term investments of $92.5 million, compared with $424.4 million at August 31, 2007. The $331.9 million year-over-year decrease in the cash position was driven primarily by the net loss from operations and purchases of property and equipment. These factors were partially offset by net proceeds from short-term borrowings.
There is a new CEO interm
Posted by Peaser on :
Why are they buying more property when they are having a hard time keeping afloat currently with retail sales down for the year. Inventories are down, some stores shelves are nearly bare.
They need to be cutting back to survive IMO. Another K-Mart IMO.
Posted by Rockster on :
They are discussing cutting back on store openings/suspending them. but continue relocations. Huge costs.
Bankrupt? maybe unless the trend changes.
Why did they not accept the buyout? Well they never showed the books I read.. so either they didn't want them to be seen or shareholders who have lost money didn't want to be bought at a low price.
Now they are looking at .58
are they blind to the condition of the company?
I would say buy a little, maybe more if dips but aware of the risk of 0
I have been thinking about this one a lot.
Posted by Peaser on :
No one wants to invest in retail right now IMO.
Posted by BooDog on :
quote:Originally posted by Peaser: No one wants to invest in retail right now IMO.
gonna be a tight Christmas, which is just the opposite of what they need. They have already said a weak holiday season may make or break them.
Posted by Rockster on :
quote:Originally posted by Peaser: No one wants to invest in retail right now IMO.
that's right we all are investing in banks and mortgages falling on their a+_+
Posted by Peaser on :
LOL, sorry. I should have been more clear. No one is investing in anything right now, especially retail + banks IMO.
Get in, get out quick on everything for awhile IMO.
If outstanding news hits on any big board stock, get in, and get out quink IMO. Other than that, I'm in cash, as I belive everyone should be.
Posted by BooDog on :
It's a pink sheet market!!! LOL
Good to see you BTW P!!
Posted by Peaser on :
Well, we'll probably see many companies falling off the big boards to the OTCBB in the coming year or two anyhow IMO.
U2 Boo.
Posted by Rockster on :
They may be finally realizing the problems they are in. Making changes.
Circuit City Halting Some FY09 Store Openings; Hires Advisor Font size: A | A | A 3:37 PM ET 10/6/08 | Dow Jones RELATED QUOTES
8:00 PM ET 10/7/08 Symbol Last % Chg CC 0.50 0.00% Real time quote.
By Mary Ellen Lloyd
Of DOW JONES NEWSWIRES
Circuit City Stores Inc. (CC) has put the brakes on opening some stores it had planned for the current fiscal year and has hired outside advisors to help in its restructuring effort.
Company spokesman Bill Cimino said Monday that the steps, which are on top of plans announced a week ago to suspend most store openings beginning next year, are tied to the troubled consumer electronics retailer's "comprehensive review of all aspects of our business."
"As mentioned in our recent earnings call, we cannot grow our way to success without first fixing our core business," Cimino said in an email.
He declined to provide specifics immediately on the advisory firm or how many store openings are delayed. But an industry source with knowledge of the situation said Circuit City had retained FTI Consulting, which has advised on several troubled retailers, including home decor specialist Bombay Co. and grocer Winn-Dixie Stores.
An FTI representative couldn't be reached immediately for comment.
The steps appear to provide fresh evidence that the Richmond, Va., company is moving more urgently to stem its losses as it heads into what's expected to be a weak holiday selling season.
Shares of Circuit City recently traded up 3 cents, or 5.3% at 59 cents a share despite a global selloff of stocks and fresh fears that retailers will suffer from further weakened consumer spending amid economic and financial market worries.
Fresh off of replacing Chief Executive Phil Schoonover with director James A. Marcum, who led the restructuring and ultimate sale of another electronics chain, Ultimate Electronics Inc., Circuit City last week said it would open 16 to 26 more stores before the Feb. 28 end of fiscal 2009. At the same time, it outlined intentions to suspend store openings "other than existing commitments" beginning with fiscal 2010.
But on Monday, Cimino said some of those 16 to 26 stores are now on hold.
Circuit City faces pressure from all sides as larger rival Best Buy Co. (BBY) continues to open stores and take market share. Meanwhile, the discount-pricing message of Wal-Mart Stores Inc. (WMT) seems to be resonating especially well with shoppers in the tough economic environment, and some analysts expect the retailing giant will unveil new deals on electronics ahead of the holidays that may upend specialty stores' efforts to maintain rational pricing.
For nearly nine months, critics have said Circuit City should conserve cash or use it to boost performance at existing stores rather than continue to open outlets as the chain loses market share. But for most of 2008, company executives said Circuit City, which pioneered the big-box electronics chain store, couldn't afford to close stores or cease expansion so long as competitors continued to add on.
The company readily admits that one of its biggest challenges is the fact that about 400 of its nearly 700 stores are too big, outdated, in suboptimal locations, or all of the above. Many were built in the 1980s or 1990s, when Circuit City could afford to build in cheaper, more out-of-the-way locations because it was the market leader in electronics.
Averaging 34,000 square feet, the stores had ample space to sell appliances, but Circuit City got out of that business years ago. Now, 20,000 square feet is plenty. Unfortunately for Circuit City, all but about 71 of its stores have leases running through at least 2014, with 279 stores on leases through at least 2019, according to filings with the Securities and Exchange Commission.
Of its $3.98 billion in off-balance sheet obligations for operating lease commitments, more than half is tied to leases with more than four years remaining.
And even though the company spun off auto superstore business CarMax Inc. (KMX) five years ago, it remains contingently liable for $341 million in leases for 23 CarMax stores.
Analysts say Circuit City finally seems serious about fixing what has long been viewed as a major problem in its store base, and they expect the retailer may either close underperforming stores or renegotiate lease terms.
Ironically, Circuit City's weak financial position seems to give it more leverage as it talks with landlords.
"If you're a really healthy retailer, it's difficult to get a concession (on leases), because that's the thing the landlord relies on," said Andy Graiser, co-president of real-estate advisory firm DJM Realty LLC. "If a retailer is struggling, there's a very good opportunity for rent reductions."
Graiser, whose firm has been handling store closings tied to Linens N' Things' Chapter 11 bankruptcy protection filing, declined to comment specifically on Circuit City's plans or prospects, as did principals at some other major real-estate advisory firms. But several said the general retail real-estate environment could work in favor of a company looking to lower rates or get out of some leases altogether.
And more retailers are trying just that, said Harold Bordwin, managing director of co-head of real estate services for KPMG Corporate Finance LLC. "The difference between now and a year ago is fairly dramatic," he said. "The level of economic concern and distress has increased dramatically for retailers."
Circuit City in August put on hold the completion of a $45 million distribution facility near Scranton, Pa., that had been scheduled to begin operations in time for the holidays.
Investors, meanwhile, are losing faith that it can address underperforming stores quickly enough, given its weakening balance sheet. Shares have fallen more than 65% in the last 10 days.
Circuit City ended its most recent quarter with $92.5 million in cash and short-term investments, down 78% from a year earlier, but it borrowed $215 million against its $1.3 billion inventory-secured credit line, which was more than analysts had estimated.
"They're definitely a buyer that's concerning to us that a couple of years ago was not," said Steve Lapsley, retailing industry manager for credit insurer Euler Hermes. Lapsley wouldn't comment specifically on whether it is providing credit insurance to Circuit City's suppliers.
- By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; maryellen.lloyd*dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=p6N7fvxBgNVlFcXE2xeYCg%3D%3D. You can use this link on the day this article is published and the following day.
> Dow Jones Newswires
10-06-08 1537ET
Copyright (c) 2008 Dow Jones & Company, Inc.
Posted by BooDog on :