Bye Bye Schnoover

Circuit city CEO Philip J Schnoover has finally resigned. Here is a guy who took a reasonably profitable company, a company that Jim Collins described as great in his book 'Good to great' and ran it to the ground. Under his stewardship share price plunged from 30$ to 1.7$.

While all this was happening the CEO had no idea why this was happening and what could be done to turn the company around. He tried desperately like a guy who is drowning and doesn't know how to swim. For example replacing the senior employees with high school kids to cut the cost is particularly a dark chapter in the history of Circuit city.

In a company if returns on assets is less than the cost of capital, it is not wise to buy more assets. Despite that CC kept on the opening more and more stores leading to bigger losses. One may argue that in retail the economy of scale matters a lot but you have to have some idea as to at what revenue target, you will break even. It seems that the more stores Circuit city opened, the more losses it reported.

The chances of Circuit city survival as an independent company are slim. Either it will be bought over by vulture investors(which seems more unlikely now since all the cash is squandered by the current management) or it will be bought by some other company that sees synergy with CC. The best scenario for the investors is that the new CEO will turn the company profitable or atleast break even hence making it more attractive to prospective buyers. This process will take long time. If you are patient and adventurous, you can either win 400% return in 1-2 years or lose it all.