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Circuit City on Life Support

Here's the good news for Circuit City Stores : Its 2Q financial results outperformed Wall Street's expectations. Here's the bad news: Those expectations were ludicrously low to begin with. A loss of $239.2 million, four times bigger than the loss the same quarter a year ago, is nothing to celebrate. The only consolation in that number is the fact that $73 million of it was a non-cash asset impairment charge, which means that the cash loss came out to "only" $162.7 million – a tad better than the $170 million to $185 million that analysts had been expecting.

One thing for sure, Circuit City is nowhere near a turn-around as it approaches the critical Christmas retail season in a year that consumer confidence is plummeting. No wonder Philip J. Schoonover stepped down as CEO last week. He'd begged for time to let his turnover plan work. The board gave him time, and the plan didn't work. Now the only things standing between Circuit City and bankruptcy are acting CEO James A. Marcum and the vagaries of a sinking economy.

"We realize the performance of this company is unacceptable to all of our stakeholders and that it is imperative that we take the right steps to accelerate our turnaround," Marcum said in a conference call with investors, reports the Associated Press. "The past several years have been difficult for this company. ... We must get back to the basics and, make no mistake, this is all about our customers."

In truth it's really all about the cash: Circuit City reported that its cash position is down to $92.5 million, from $424.4 million a year earlier. As the company burns through its last cash reserves, Circuit City's vendors are keeping the company afloat.

"It is clear that the vendors do view us as relevant, they do view us as having a reason for being," said Marcum. "They are very supportive of where we are, they are actually very happy with a number of the initiatives we're talking about ... and the speed at which we are moving."

CFO Bruce H. Besanko added that management believes vendors will keep providing the support the company needs to move through the holiday season. "So far we've had no issues in building the inventory we need for the holiday and I'm not anticipating any issues on a go-forward basis," he said.

Besanko outlined the pluses and minuses of the company's performance in a press release yesterday: "The company delivered above-plan pre-tax results ... through improvement in our gross margin rate and continued expense control. We continue, however, to face challenges in our sales performance. Our sales were below plan for the quarter, driven by a significant decline in traffic, which we believe reflects the worsened macroeconomic environment, competitive pressures and a weakened brand position."

Reading between the lines of the quarterly report, it appears that the board has given up on a rescue by an outside buyer. Stated the report: "While strategic options will always be explored as part of [the board's] fiduciary responsibility, given current market conditions, it is prudent to focus internally on improving the company's performance in order to operate as a standalone business."

Management has identified four areas to drive profitability: customer experience, execution, service culture, and stores.   As a first step toward making needed improvements in these four key areas, the company has put Jeffrey S. Stone , the executive vice president who ran "the city" store remodeling initiative, in charge of the company's retail operations. Stated the report: "The integration of the retail leadership will facilitate the implementation of many successful cultural, visual presentation and customer service components from the city across the entire chain."

Additionally, management is "intensely focused" on ensuring a successful holiday season. Prorities include:

-- Focusing on easily-implemented tactics to enhance the customer shopping experience

-- Improving the company's in-stock position on key items and advertised products

-- Upgrading in-store signage and visual merchandisin

-- Finalizing the chain-wide rollout of "Simple to Shop" in home entertainment

-- Launching a new marketing brand campaign supported by relevant traffic-driving offerings

"In my observations of the business since joining Circuit City, there are some fundamental principles of retail that we need to execute more effectively," Marcum said. "Our full management team has reviewed plans from the past to identify what worked well and what did not. Through this work, we have established simple initiatives that will allow us to 'get back to basics' and will guide our actions for the holiday season."

Marcum closed on an optimistic note:   "We look forward to sharing with you our specific initiatives in the coming months."

The "coming months?" Absent a Christmas miracle, "months" may be all the time that Circuit City has left.