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Circuit City pulls the CEO switch

Schoonover runs out of time to turn around the electronics retailer.

September 24, 2008|From the Associated Press

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 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 nearly 9% 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 chief executive of the 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 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% 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 after the announcement.

Tilghman said Schoonover's departure combined with Circuit City's announcement that it would probably 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, such as 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 and increasing customer traffic. Vendor support also remains a closely watched issue.

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.

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