Circuit City seeks jolt as embattled CEO departs

[September 24, 2008]  RICHMOND, Va. (AP) -- 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 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 more than 4 percent.

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 following the change of command.

Schoonover stepped down Monday as chief executive, 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 this June to defuse a fierce proxy battle, will stand in as the chain's interim president and chief executive. 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 movie-rental chain Hollywood Entertainment Corp. and retailer Ultimate Electronics Inc., was appointed Circuit City's vice chairman.

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

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

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

Shares in Circuit City, which have traded between $1.51 and $9.65 over the last 52 weeks, dropped 7 cents, or 4.1 percent, to $1.63 in afternoon trading.

Circuit City spokesman Bill Cimino said Tuesday that new leadership did not mean a possible sale was off the table, and that 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 Inc., 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 movie-rental chain withdrew its bid in July because of market conditions.

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On the Net:

Circuit City: http://www.circuitcity.com/

[Associated Press; By MICHAEL FELBERBAUM]

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