Circuit City Stores, Inc. specializes in consumer electronics, home office products, entertainment software, and related services. Previously, this company was only engaged in domestic business of selling brand-name consumer electronics, personal computers, entertainment software, and related services. In 2004, they acquired another chain of stores InterTAN, Inc. in Canada. The international segment has 954 retail stores and dealer outlets, which consisted of 540 company-owned stores, 300 dealer outlets, 93 Rogers Plus stores, and 21 Battery Plus stores. In 2005, Circuit City sold their private-label finance operation.
The company's cash and cash equivalents consist of cash on hand and highly liquid debt securities with original maturities of three months or less. (p. 41) The company has changed their strategy from 2005 where their cash was generated from net earnings and improved working capital management as domestic segment merchandise inventory levels were reduced and merchandise payable increased. In 2006, cash was generated through net earnings plus adjustments for non-cash items. They also increased the inventory to improve in-stock levels. In order to buy the business chain in Canada, they sold the credit card bank and stock. The forecast for earnings estimate according to MSN money is steadily increasing for the next two years.
The receivable turnover is at 51.4% in comparison to "S&P 500" companies with 25.5%. Their inventory turnover is at 5.6 vs. 9.2 for "S&P". (MSN money). The current ratio for liquidity is 1.746 reflecting a solid foundation. A little disturbing is the notation about the ongoing litigation with RadioShack Corporation for its international business. The international segment had to re-brand most of its company-owned stores and dealer outlets. To the positive, an allowance for estimated sales returns has been established. Even though the company is not concerned about the outcome of the litigation, I believe as an investor I...
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