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Quick Hits: Circuit City Could Short-Circuit


Brief scrutiny of today's headlines.

Circuit City (CC) may be headed for bankruptcy.

The nation's number-2 consumer electronics retailer will close 155 of about 700 US stores by December 31 and lay off about 7,300 of 43,000 workers in an effort to stay alive.

Circuit City says the stores it plans to close produced about $1.4 billion in net sales in fiscal year 2008, or an average of $9 million per store.

But closing underperforming stores may not be enough. The company has been outpaced by sector leader Best Buy (BBY) and buffetted by an increasingly aggressive Wal-Mart (WMT).

Circuit City must struggle with tightening credit from vendors - but the real crusher may be the downbeat economy. Holiday sales are expected to be weak this year, and that's bad news for Circuit City's efforts to hold on. Shoppers may shun the chain, fearing that warranties won't be honored if it goes out of business. In short, Circuit City probably faces an increasingly negative perception among consumers, leading to further erosion of sales.

Circuit City says it plans to reduce new store openings and hopes to work with landlords to renegotiate leases. Neither action indicates strength or future growth.

Circuit City's shares have traded under $1 for more 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.

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No positions in stocks mentioned.
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