Circuit City On The Bankruptcy Express

As good as Goldman's (GS) earning were, Circuit City's (CC) were just as momentous but for the opposite reason.

Back in May I posted "CC has appealing stores in good locations with a nice product mix, they are just abysmally run."

The most recent quarter's earnings release Thursday saw that same management turn what had been a $.06 profit this time last years to a whopping $.38 loss, easily beating the street's expectations of a $.12 loss. Nice job boys, got it backwards.

In June I did an update on Circuit City and said "As a trade, any good news could vault shares up immediately. But, I do not see the conditions that could create that good news anytime soon. Maybe they could get bought out and that would cause shares to jump, but, I am reluctant to invest on the prayer someone rescues them. An Eddie Lampert, based on past history would just be as likely to wait for these buffoons to run it into bankruptcy and buy it there even cheaper than now. Why pay a premium to the current price when in bankruptcy he could get it for a fraction of it?

At their current rate CC will be out of cash before Thanksgiving and then the fun really starts. This assumes they do not start ramping up debt to pay for operations and also assumes no further economic slowdown. Should the economy slide even more, see ya..."

As of today cash, cash equivalents and short-term investments decreased by $175.2 million from a year earlier to $424.4 million (sill 1/2 of May's levels), driven by $320.4 million in purchases of property and equipment and $194.3 million in stock repurchases and dividend payments. These uses of cash were partially offset by cash provided by operations, including a $143.5 million improvement in net-owned inventory, and cash provided by the issuance of common stock.

What to do? Stay away, far away. Circuit City has made blunder after blunder and as long as current management is still at the helm, there is no reason to expect anything different and that means things are not going to get better anytime soon.

The real shame here if you are a shareholder is that you could have received twice today's price in 2005 in a private equity offer for the company. You will not see shares at that level for a very long time... if ever