CEO Philip Schoonover sang a familiar song at the Circuit City Stores annual meeting yesterday (with apologies, ironically enough, to the Chairmen of the Board):

Give me just a little more time
And our sales will surely grow.

The consumer electronics retailer has a good plan in place, Schoonover told investors. Despite the appearances created by increasing losses and shrinking cash reserves, his turnaround plan will start showing results soon. It just needs time. 

But time is one thing Schoonover has precious little of. At the current rate of cash burn, Circuit City will have to re-enter the capital markets to raise more funds. Given the retailer's dicey prospects, any loans will be expensive and restrictive, and any equity raised will dilute shareholder value. Meanwhile, it was revealed yesterday, not one but three companies are examining a possible takeover of the company.

On the positive side for the Circuit City management team, Mark J. Wattles, president of Wattles Management LLC, a dissident shareholder who has won a seat on the board, said that Schoonover's turnaround plan has merit, and he agreed with the CEO's assessment that the chain eventually would be successful, reports Louis Llovio with the Times-Dispatch.

Of course, Wattles, whose company owns 6.5 percent of Circuit City’s shares, is not going to publicly trash the company – especially while he’s trying to position it for a sale. Three different companies are in the final stages of reviewing the company’s books, he said yesterday. Blockbuster Entertainment, the only one of the three to public announce its interest in taking over Circuit City, offered $6 per share in April.

With Circuit City stock selling for less about $3.50 per share, it is clear that many on Wall Street are skeptical that Blockbuster, which has financial difficulties of its own, can pull off a takeover. Indeed, Blockbuster Chairman Jim Keyes may be talking himself out of the whole idea. Keyes’ strategy for reviving the fortunes of his company is to transform it from a chain that rents content in the form of DVDs into a place where people can download content directly from kiosks. As Keyes said in a Friday conference call, reports ContentAgenda.com, "We don't actually need to acquire Circuit City to start selling consumer electronics."

Blockbuster is testing the idea of using sales people equipped with tablet PCs to turn Blockbuster outlets into virtual CE stores.

"You can interrupt the customer as they're standing in front of a [download] kiosk, or a small display, and make an Internet-assisted sale, by helping them through the transaction and ringing up the sale on the spot," Keyes said in the conference call. "The product would be delivered by mail or overnight to the store for pick-up the next day."

Why spend $1 billion to buy brick-and-mortar Circuit City locations? "What CC gives me is a bigger box to do demos in," Keyes said. "You can demo videogames, which I think is very important. You need an environment where you can demonstrate the download capabilities of different devices, of set-top boxes and so forth. We can't really do that in the footprint we have now. We can make the big box into a new kind of entertainment destination."

Maybe. But many observers are dubious. Keyes’ ability to buy Circuit City hinges upon Wall Street’s confidence that an acquisition won’t drag Blockbuster down with it. And people are wondering, is the City’s business model salvageable during a severe downturn in consumer spending?

BusinessWeek quotes Andy Hargreaves, an analyst at Pacific Crest Securities in Portland, Ore.: "Right now the Street is valuing it at 3¢ on a dollar of revenue — there are worse retailers that trade at 15¢ on the dollar. The question for a potential buyer is: Can you make it profitable? If it's bad merchandising and bad management, then that can be improved, but the trick is knowing whether the problem is structural."