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billddrummer
355 Comments
Circuit City Falls Further: 'Bring Out Your Dead'
After today, everybody sucks at stock picking.
And you thought the bottom formed last week!
Stocks have farther to fall. CC closed at 0.37 today.
But an analyst at KeyBank upgraded BBY to a buy, with a $32 12-month price target.
BBY is trading at close to its intrinsic value. When you see that same phenomenon begin to spread throughout the stock market, then the bottom will be reached, and advances can commence.
I don't follow very many issues. I have no investment dollars, and just look at sectors I'm personally familiar with--right now that's commercial banks, specialty retail, automotive and real estate.
None of those sectors have fallen enough to warrant investing in (my opinion), because they're still trading higher than their intrinsic values, and P/E ratios are still too high.
If I gave advice (which I rarely do), I'd hold any cash to the sidelines for another week or so, and then buy selectively based on company fundamentals.
But that's just me.
Circuit City Falls Further: 'Bring Out Your Dead'
It's Our Own Fault, Not Theirs
Now is that the entertainment industry's fault, or is it ours?
Circuit City Falls Further: 'Bring Out Your Dead'
I review the foreclosure rolls from my area each week. About one-third of the foreclosures show ethnic (primarily Hispanic and Asian) names.
If that's a trend affecting the country, then it's simple to fix--just prevent home sales to ethnics....oh wait, then the CRA promoters would have apoplexy and we wouldn't be providing 'affordable housing for minorities.'
I don't think there's any solution. But I refuse to use the 'C' word (starts with c, ends with s, two syllables), because it's possibly the most overused word of the year.
Circuit City Falls Further: 'Bring Out Your Dead'
That's frightening. I suppose demographers would say that it's the result of 1)the baby boomer generation aging; 2)their children drastically scaling back family size; and 3)young immigrant families moving to the US with higher than median birth rates.
If the baby boom generation is the 'basketball in the python,' the population <18 is the volleyball at the neck.
Now this presents an interesting investment problem. What do the young people of America want in products and services?
I have two teenage daughters. They're tech-savvy, need cellphones with video sharing, spend more time online on their phones than on standalone computers, and scoff at reading books in the traditional sense.
And since I'm a parent, they don't talk to me. Which is OK, because I didn't speak to my parents for about 5 years when I was a teenager. Useless.
But anyway, if someone figures out what this group wants, both now and in the future, they'll get rich. er. (AAPL looks good from here.)
Circuit City Falls Further: 'Bring Out Your Dead'
You're right about the YMCA CD. If you can find it.
As far as the fixtures, etc., if you're looking at a scenario where you're trying to get the worst case value, depreciated value for a bunch of shelves may be less than liquidation value. Just depends on how old the shelves are.
I tend to think that about 40% of the domestic stores are unprofitable and should be closed. And all but 5 stores are leased, so there will be lease termination costs associated with the stores that shut down. Most of the leases extend for 5-20 years into the future, so you're talking a lot of money to close them. (On the 10-K the company is still paying for leases on stores that closed 5 years ago. The present value of the terminated leases is $340 million, I think.) Add severance packages for employees and that's even more.
As you know from your MBA studies, there's more to a restructure than just handing the keys to the landlord. You did a great job detailing how vendor credits would work, if they would exist at all, and how short the product cycle is for CC's principal merchandise mix.
This isn't going to be easy or painless.
Circuit City Falls Further: 'Bring Out Your Dead'
Ah yes, I will hie myself hither.
And I appreciate your commentary about the nuts and bolts of retail merchandising.
I'm tempted to think, though, that the vendors will remain satisfied if only because of the credit line CC got from its bankers (see the link farther up this thread). That credit line (which includes a sublimit for letters of credit) will allow the company to pay all of its vendors according to terms.
Unless, of course, the bankers change the terms of the credit agreement.
If BofA, JPMorganChase, or any of the subparticipant banks get nervous, you can bet the due diligence people will be in Richmond poring over the books.
If I were part of the crew, I'd be particularly interested in the impairment charge that CC took in the second quarter. Which assets were deemed impaired? What's the remaining value according to the company? Are there other assets that need to be written down? Is the company carrying store fixtures at cost, when liquidation value is 10% of that? Are stores bulging with stale inventory? Are there off-balance sheet liabilities that need to be recognized?
The only financial restriction I can recall is that the company's assets have to exceed its liabilities. With asset values going down, losses eroding capital, and debt rising, it's plausible to think that CC may become technically insolvent shortly. (They've got company--GM and Ford are too.)
That would qualify as a Material Adverse Event, according to my reading of the loan documents. At that point, the banks could change the terms of the agreement, restrict advances, or even call the outstanding balance due and payable.
If CC can't draw on the credit line, it can't pay its suppliers. If it can't pay its suppliers, vendor support disappears.
And if vendor support disappears, so does the company,
I started a thread on fool.com entitled "Circuit City Shorts Out." That was nearly a year and a half ago.
And Here. We. Are.
Ramifications of Homebuilders Dumping Land for Tax Breaks
Please see this comment I posted from September 8:
billddrummer 342 Comments Sep 08 10:15 AM I still think that median prices will fall to the level seen in 2003, before the boom began. When that happens, we'll see inventory getting cleared much more quickly.
As far as people holding their homes off the market waiting for prices to improve, they'll have to keep waiting. I don't think prices post-boom will start to rise until the inventory level becomes more balanced. Which could take another year or two.
I feel like an oracle.
All the best,
Bill
Circuit City Falls Further: 'Bring Out Your Dead'
The tale to be told will be what orders will look like for CC after the holidays. I submit that if there's a glut of inventory left over, orders will be much lighter. That's when, in my opinion, you'll see pushback from the vendors. I don't believe they'll be willing to take back what's already been shipped, and if the orders come in light, vendor support may vanish into the haze.
And if a clown college is where giggler spent time (makes sense), perhaps the makeup and wardrobe books would be the driest. All that powder, don't you know.
I did more research on the NYSE angle, and the delisting process takes awhile--90-120 days.
The question is this: Which will happen first--delisting because of violating the rules, or delisting because of bankruptcy?
Moody's Makes a Bad Situation Worse
You've hit upon a great truth. Thanks for this analysis.
Circuit City Falls Further: 'Bring Out Your Dead'
A research analyst in Cleveland said a Chapter 11 filing was 'likely':
www.twice.com/article/...
He also mentioned that the company needed to secure vendor support, and if one pulled out, the others would swiftly follow.
Circuit City Falls Further: 'Bring Out Your Dead'
With the bar so low, do you think giggler's reading legal textbooks?
Circuit City Falls Further: 'Bring Out Your Dead'
I trust you watch for entertainment, not investment advice.
But aside from that, why does CC need 3,500 people at HQ in the first place?
And what do they do?
Homebuilder Update [Housing Tracker]
Thanks for this resource!
Centex and KB Homes are doing the same thing here in Northern NV. A new subdivision is advertising homes in the <$200,000 price range, when only 18 months ago the going rate for new construction was $300,000+. These homes are basic, with small lots and few amenities. With Centex, houses in later phases are discounted by $30,000-$50,000, depending on the floorplan. I spoke with one recent purchaser who saved $30,000 on a house they had already put a deposit on. By the time the home was completed, it was cheaper.
Lots are getting smaller too, as developers try to make up for building costs by cramming more units onto a parcel. The planning commission has been favorable to density adjustments in many starter subdivisions.
Rationality has returned to the new home market here. So if you want to call a bottom, this might be it. The problem I see is that this bottom won't be rising any time soon.
I look for flat to declining median home prices for at least another 6 months, and then no appreciation for 3-5 years after that. So a 'recovery' as classically defined won't begin until 2011 at the earliest.
Housing is no longer a growth industry in Northern NV.
Circuit City Falls Further: 'Bring Out Your Dead'
That response is similar to how the CEO of GM, Mr. Wagoner, responded when a reporter asked him about the impact of Toyota on GM's domestic sales. He replied (paraphrase) that he wasn't focusing on what the competition was doing, but rather the progress of the cost-savings plans for GM.
Shortly after that, Toyota surpassed GM in market share.
It's funny how management in different industries makes similar mistakes. If GM could figure out how to speed up its new product cycle (and didn't leave obsolete brands on sale [Oldsmobile ceased being relevant fully 7 years before GM pulled the plug]), it would represent formidable competition to Honda, Toyota, et al. Instead, its debt trades at a 34% yield, and the stock is within a hair of its all-time low, notwithstanding the surge today.
CC said its target customer wasn't Wal-mart's. They've discovered that their target customer isn't anybody. WMT takes the bargain shoppers, and BBY takes the rest.
Like the old saying "Stay at our hotel for a change and a rest. The bellboy takes the change, and the hotel takes the rest."