Wattles Demands Schoonover’s Dismissal

Activist Mark Wattles has had the best line to date on Circuit City’s (CC) turnaround effort.

Wattles said management “has repeatedly touted the fact that they have cut $200 million of annualized selling, general and administrative expenses while ignoring the fact that approximately $500 million of gross profit has been wiped-out in the process.”

Beautiful…

He has also nominated 5 people to the Board of Directors and a proxy fight is on.

I first wrote about CC almost a year ago now and speculated it may be a good buy-out candidate. Not soon after that I backed off that claim after watching Schoonover & Crew’s various missteps and have since said that the company is still a good buy-out candidate, but not until current management is gone.

The WJS ran a piece Thursday that said “The company has a lot of financial commitments to stores in sub-par locations. Many retailers have gone the way of all flesh. It’s a precarious industry. Their former big box stores litter the landscape like giant ruins. Circuit City could certainly follow suit. The advantage of a $4.65 share price, as speculators are wont to joke, is that you know your downside. That’s even more true of the options. There is nothing wrong with taking a flyer, so long as you know that’s what you’re doing.”

Now, to a point the author is correct in that at $4.50 a share, the downside is minimal. But, unless you buy a bunch, so is the upside. Your profit or loss is based on what your total investment is, regardless of share price.

Whether a stock is $100 or $2, really does not matter, it is the dollar amount you buy that matters. If I by 2 shares at $100 or 100 shares at $2, my investment is the same.

All that being said, I may buy the day Schoonover leaves, but not a second before. Given the current economy and his track record, $4.50 is much more likely to become $2.50 than $6.50 in the near future.

If shareholders are lucky, Wattles gets his wish….

Disclosure (“none” means no position):None