CarMax and Circuit City: Sniffles and Pneumonia:

carmaxfreshIt was a rough week for CarMax and Circuit City. CarMax stock shed $2 a share, or about 11%, on news that profits at the company dropped 55%. Meanwhile, Circuit City – the company from which CarMax was spawned – is on life support and looking for a transfusion. Or is it an organ transplant?

It was a rough week for CarMax and Circuit City. CarMax stock shed $2 a share, or about 11%, on news that profits at the company dropped 55%. The used-car superstore can’t seem to lower prices on SUVs fast enough to match consumers’ growing distain for gas hogs. Small cars are flying off the lots. But across the automotive industry, smaller cars are just not as profitable. CarMax’s stock is now at or about the same as August of 2005. Meanwhile, as trade-in value slumps, fewer buyers will have the funds to get snazzier vehicles from CarMax, which could mean fewer sales in coming quarters.

Meanwhile, Circuit City – the company from which CarMax was spawned – is on life support and looking for a transfusion. Or is it an organ transplant? Either way, if there are no donors (aka people to buy soon-to-be-issued shares) it may soon be beyond resuscitation. The company continues down a money-losing death spiral. First-quarter sales fell 7.4% as earnings fell deeper into negative territory and cash on hand fell 75% to $92.2 million. Sales at stores opened at least a year plummeted 11 %. As a result, management is moving into capital-preservation mode and cutting its dividend. The stock traded down 10% on Friday.

Employees at publicly traded companies typically get company stock as a bonus or small part of compensation. The value of that stock is falling. How might that affect the greater Richmond economy?

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