Circuit City: Indecision & Capital Misallocation

Circuit City: Indecision & Capital Misallocation In February 2001, Circuit City had $437 million in cash, a profitable credit card business, a $1 billion stake in CarMax, and a store base that needed $2.1 billion to fix — 200 locations to relocate, 400 to remodel. The money was there. Instead, management spun CarMax tax-free to shareholders, bought back $996 million in stock at an average of $20 a share (it went to zero), acquired InterTAN for $269 million in an effort to improve margins, and remodeled just 46 of its 571 stores. This case builds a detailed counterfactual showing how Circuit City could have funded its entire turnaround from existing assets — and examines why it didn't, and what that cost it.

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