Holiday Central

Circuit City Facing Bad Economy And Self Inflicted Wounds

A Circuit City store in Richmond, Virginia.
Steve Helber

I was listening to the Circuit City conference call this morning and one headline really jumped out. Management said that the company is "assuming a recession in the first half of the year and a soft economy in the second half."

Of course, tighter consumer budgets aren't helping business BUT a lot of Circuit City's problems are, admittedly, self-inflicted. U.S. sales were down 8.8 percent to $3.45 billion and same-store sales sank 11 percent.

Still, Circuit City surprised many with posting its first quarterly profit in the past five quarters. Can it keep the momentum while growing the business without hacking away at staff and expenses? That's the question that investors including activist Mark Wattles, want to hear answered.

Unfortunately, we did not get those answers on today's call. CEO Philip Schoonover avoided addressing the changes that Wattles is demanding. Saying that the company will speak about those issues raised by Wattles at the appropriate time. I'm not sure when that will be but clearly the proxy battle is heating up.

Schoonover did say that the company made "too many changes too quickly" and created self-induced problems with reduced margins, etc. Beefing up customer service and the firedog portion of the business seem to be Schoonover's solution to these problems right now.

So, does Wattles still think that the turnaround efforts are "disastrous"? Will all this activist pressure amount to any real sales results or are investors just hoping to squeeze 'blood' from stones? We'll have to see.

Circuit City Surprises the Street

Questions? Comments?