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Circuit City Pulls Plug on Appliances

Merchandising changes are planned in hopes of increasing earnings

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Was Circuit City's decision to strike large appliance centers in all 573 stores a hasty one? Investors seemed to think so. Stock prices tumbled by 11 points the day of the announcement, and now – almost two weeks later — they're still, at $22, about one-third the company's 52-week high (which was $65 a share).

The Richmond, Va., chain previously announced that it would eliminate appliances from new stores opening later this summer. The more-recent announcement makes the strategy seem much extreme. Additionally, the chain plans to close six distribution centers and cut 1000 jobs.

By the fourth quarter, Circuit City hopes to reformat its fleet, replacing large appliances only with an expanded selection of consumer electronics – a move that large appliance vendors reportedly had no advance notice of. The chain also intends to spend almost $1.5 billion (about $2.5 million per store) on the retrofit.

The chain's fiscal optimism has some analysts puzzled. Although Circuit City is going through a significant transition, and will need to recoup the $1.6 billion in sales revenues it got from appliances last year, the chain also raised its fourth-quarter earnings estimates.

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