Circuit City's 77% share drop since February

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Circuit City Stores, Inc. (Public, NYSE:CC), America's 2nd-largest consumer electronics retailer, saw its shares fall more than 20% on Friday as it announced larger than expected quarterly losses and issued a cautious earnings forecast.  Now shares stand at $4.75 and inched up to $4.82 in after-hours trading.

CC operates more than 660 superstores across the US yet it's shares have fallen 77% since February 21st. 

Coupled with a wider-than-expected third-quarter loss, the gloomy prediction prompted Wall Street to question whether Circuit City should give up trying to fix its numerous problems and hang out the "for sale" sign.

"Clearly we are very dissatisfied," Chief Executive Philip Schoonover told analysts during a conference call. Schoonover said the company underestimated the financial impact of cost-saving initiatives on sales. "Our current focus is to rebuild our selling culture," he said.

For the three months ended Nov. 30, Circuit City's losses ballooned to $207.3 million, or $1.26 per share, from $20.4 million, or 12 cents per share, a year ago. Excluding tax-related accounting items, losses totaled 64 cents per share in the latest period.

Sales slipped 3 percent to $2.96 billion from $3.06 billion a year earlier, with sales at stores open at least a year falling 5.6 percent.

To add icing to the cake, Schoonover responded to 3rd quarter losses of $207.3 million by unveiling a retention program that will reward each top executive with $1 million. This is the same management team that axed 3,400 experienced salespeople leading to 2nd quarter losses of $62.8 million. Circuit City has already lost three (3) top executives this year, and Schoonover warns that the future earnings will be imperiled unless his management team remains intact. 

Best Buy (BBY) reported on Dec. 18th that profit that rose more than analysts estimated in the three months ended Dec. 1. The company raised its full-year profit forecast on demand for flat- panel televisions and computers during the holiday season.

The fourth quarter, which includes the holiday season, is typically when electronics retailers generate most, if not all, of annual profit. In 2005, the last year Circuit City earned an annual profit, it all came in the last three months of the fiscal year.

Analysts favor purchasing Best Buy shares over Circuit City. Seventeen analysts suggest buying Best Buy, nine say ``hold,'' and one suggests selling. Circuit City is rated ``buy'' by three analysts, 21 say ``hold'' and two suggest selling.

How about a LBO before the year end, get it down to $3 a share and even we could buy them.

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