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Quick Hits: All Circuit (City) Failure

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Brief scrutiny of today's headlines.

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Here's a guaranteed way to pummel holiday sales: File for bankruptcy.

Circuit City (CC), the nation's second-largest consumer-electronics retailer, has filed for Chapter 11 protection. The court action will allow the company to operate as it reorganizes its finances.

Last week, Circuit City said it would close 155 of about 700 US stores by December 31st and lay off about 7,300 of its 43,000 workers in an effort to stay alive. The company said the stores it plans to close produced about $1.4 billion in net sales in fiscal year 2007, or an average of $9 million per store. The company also operates about 770 stores in Canada.

Circuit City has been outpaced by sector leader Best Buy (BBY) and buffeted by an increasingly aggressive Wal-Wart (WMT). Amazon (AMZN) and other Internet-based retailers have eroded Circuit City's sales of computers, TVs and music.

Circuit City must struggle with tightening credit from vendors, but the real crusher may be the souring economy. Holiday sales are expected to be weak this year - bad news for Circuit City as it struggles to hold on. The bankruptcy filing is all but certain to increase consumers' negative perception of the retailer, leading to further erosion of sales.

Circuit City has hired FTI Consulting for restructuring advice and replaced CEO Philip Schoonover with James Marcum, who has taken 2 other retailers through bankruptcies. Marcum will serve as interim CEO.

Circuit City's shares have traded under $1 for about a month and the New York Stock Exchange (NYX) may delist the stock. The stock's 52-week range is $0.17 to $8.24 a share.

In May, Blockbuster (BBI) made a preliminary offer to buy Circuit City, but the offer was later withdrawn. Circuit City may again look for a buyer, but a sale is likely to be tougher to complete - even at a significantly reduced price.
No positions in stocks mentioned.
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