Embattled Circuit City head quits

Top executive Philip J. Schoonover resigned yesterday, four months after he asked shareholders for more time to turn around Circuit City Stores Inc.

He was replaced as acting president and CEO by James A. Marcum, a turnaround specialist who was hand-picked for the Circuit City board in June by a dissident shareholder.

In a statement issued by the company, Schoonover, 48, agreed to step down from all his positions—president, chief executive and chairman of the board, effective immediately.

The end of his four-year tenure at the Henrico County-based electronics retailer comes at a time when the stock price is trading at historic lows. Circuit City is mired in losses and coming off a self-described bungling of a turnaround plan that saw some of its most senior sales people summarily let go.

The board of directors elected Allen B. King, 62, retired chairman of Richmond-based Universal Corp., as Circuit City’s new chairman.

Circuit City spokesman Bill Cimino said there was no timeline for finding a permanent replacement for Schoonover. Financial details of his departure were not available.

The change in leadership could help energize the company and help it work out of its troubles.

Kent Engelke, economic strategist and managing director at Capitol Securities Management in Richmond, said moves like this typically are good for companies.

“New management is a no-lose situation,“ he said. “If he is able to enthuse and excite employees, he can motivate them” and turn the company around.

Helping Marcum, Engelke said, is the fact that he was hand-chosen by Mark J. Wattles, president of Wattles Management LLC.

Wattles threatened a proxy fight with Circuit City this year and wanted Schoonover fired and the board replaced.

He is the third-largest shareholder in Circuit City with 6.5 percent of the company.

Wattles eventually settled with Circuit City management for about $700,000 and three seats on the board of directors.

One of those spots went to Marcum. Last month, he was named vice chairman, the second-highest ranking executive position in the company.

Wattles did not return calls, and Circuit City said Marcum was not available for interviews.

Marcum, formerly an executive at merchant banking firm Tri-Artisan Capital Partners, has a history with Wattles.

In February 2005, Marcum was named head of financial operations and restructuring strategy at consumer electronics retailer Ultimate Electronics Inc., where Wattles was a major shareholder. In April that year, Wattles bought the company.

Marcum then was named chairman and chief executive. Before that, he was an executive vice president at video retailer Hollywood Entertainment Corp., which Wattles owned.

Christopher Horvers, an analyst for New York investment firm JP Morgan, said given Marcum’s rise, the move was not surprising.

“This announcement was set in motion when the company settled the emerging proxy fight with Mark Wattles earlier this year,“ he said.

However, he said the move could help the company as it tries to finish its turnaround.

This could “reinvigorate the turnaround effort, improve execution, and focus on the right existing strategic initiatives.“

Tom Arnold, a professor of finance at the University of Richmond’s Robins School of Business, said elevating Marcum puts Circuit City “firmly in Wattles’ hands.“

But the timing, coming a week before the company reports second-quarter earnings, bothers him.

“If I was a shareholder, I’d be worried about what is coming next,“ he said.

Arnold said he would keep an eye on the cash position. For the first quarter, Circuit City reported it had cash or cash equivalents of $92.2 million at the end of May, down from $364.1 million at the end of the first quarter the previous year.

Given the current credit crunch, cash becomes very important as the company tries to right itself, Arnold said.

Engelke, though, believes Marcum’s ascension and his close relationship with Wattles could help Circuit City and be good for shareholders.

“There is no better interest than self-interest,“ he said.

As for Schoonover, Engelke believes he’ll be forgotten.

“Does anybody remember the guy who ran Chrysler before Lee Iacocca?“ he said.

Contact Louis Llovio at (804) 649-6348 or .