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Profit, Stock Woes Force Out Embattled Circuit City Chief

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The Associated Press

Published: September 24, 2008

RICHMOND, Va. - A change at the top may not be enough to jump-start Circuit City Stores Inc., after the head of the nation's No. 2 consumer electronics retailer abruptly resigned amid plummeting stock prices and calls for his ouster.

Four months ago, Chief Executive Officer Philip J. Schoonover asked shareholders for more time to turn around the company amid talks of a possible sale, despite some acknowledged missteps. This week, Circuit City's board decided more needed to be done.

But the move did little to inspire investors or analysts, and the company's shares dropped almost 9 percent Tuesday.

Circuit City, which has seen only one profitable quarter since the second quarter of 2007, "still faces a mountain of challenges," JPMorgan analyst Chris Horvers told investors in a report after the change of command.
Schoonover stepped down Monday as CEO, chairman and president of the Richmond, Va.-based company. Schoonover had joined the company in 2004 from rival Best Buy Co., where he was executive vice president of customer segments.

Board member James A. Marcum, appointed in June to defuse a fierce proxy battle, will be the chain's interim president and CEO. Former tobacco executive Allen B. King will become the new chairman.

Marcum, 49, was one of three directors elected to Circuit City's board as part of a deal to quell a proxy fight with Mark J. Wattles, whose investment firm holds a 6.5 percent stake in the company. Wattles had sent a letter to the company's board in April, calling turnaround efforts under Schoonover "disastrous" and asking for his ouster.

Last month, Marcum, who was involved in turnaround efforts at Hollywood Entertainment Corp. and Ultimate Electronics, was appointed Circuit City vice chairman.

"Fresh and turnaround-experienced management should help Circuit City recover from its turmoil, especially once economic stability is visible," Soleil Securities Group analyst Scott Tilghman told investors in a research note after the announcement.

Tilghman said Schoonover's departure, combined with Circuit City's announcement that it likely will post stronger-than-expected results next week for the quarter that ended Aug. 31, is apt to boost shareholder confidence.

But Horvers and other analysts outlined many challenges still ahead, such as the company's holding of long-term leases in poor locations and the push for its smaller concept stores called "The City" to achieve greater economies of scale, increasing customer traffic. Vendor support also remains closely watched.

Shares in Circuit City, which have traded between $1.51 and $9.65 during the past 52 weeks, had dropped 15 cents to $1.55 at the close of trading Tuesday.
Circuit City spokesman Bill Cimino said Tuesday that new leadership did not mean a possible sale was off the table, and he had no update on the status of the company's examination of strategic alternatives. The board continues to "weigh all options," he said.

In addition to its multiyear turnaround efforts, Circuit City announced in May that it hired Goldman Sachs to explore strategic options, but has never given an official timetable for any action.

The move came as the retailer opened its books to Blockbuster, which had made a takeover bid of more than $1 billion with plans to create a 9,300-store chain to sell electronic gadgets and rent movies and games. The Dallas-based chain withdrew its bid in July.

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