Circuit City Stores, Inc. (NYSE:CC) shares moved up $0.59, or 3.13%, to $19.47 in early trading today after the company announced a broad restructuring plan to better position itself against rival
Best Buy Co., Inc. (NYSE:BBY). The company said it would be dismissing about 3,400 store associates being paid well above the market-based salary range for their role and hire new employees that would be compensated at the current market range for the job. Circuit City also announced that its board authorized management to explore a possible sale of its InterTAN unit, which operates about 900 retail stores and dealer outlets in Canada. The company first purchased InterTAN in 2004 for about $284 million. Finally, the company said it will also outsource its information-technology infrastructure to
International Business Machines Corp. (NYSE:IBM) in a move to cut about 16% of its IT expenses over the life of the seven-year contract.
The restructuring follows an unexpected loss of $16 million, or nine cents per share, incurred during the quarter ended November 30th. The loss was down from a year-earlier profit of $10.1 million, or six cents per share, and came as a result of a price war over flat-panel television sets. The company has already announced plans to close some stores and restructure its merchandising teams to improve financial performance; however, it believes that these new efforts will greatly enhance margins. However, the company is likely to record a pretax expense of about $144 million, including goodwill impairment, store closing and other restructuring costs. Clearly, Circuit City is in need of some restructuring efforts to improve its financials and clearly substantial reductions in employee compensation and IT expenses will contribute directly to the company's bottom line. Meanwhile, a sale of the InterTAN unit would provide the company with some spare cash to get the process rolling without substantially reducing earnings in the short-term. Overall, this is definitely a great
stock to watch as they go through the restructuring process.
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