Circuit City Stores Inc. is facing some tough times.

Sales at the Henrico County-based retailer are stagnant. Profit margins have shrunk. Earnings are depressed. In the past year, its stock price has fallen by nearly 75 percent.

Despite the malaise, Philip J. Schoonover, the chain's chairman, president and chief executive, remains optimistic.

"What gives me faith every day is that this company has resilience," Schoonover said.

But he admits the consumer-electronics company took some missteps last year. Holiday sales fell dramatically in December. The chain reported a wider-than-expected loss for the third quarter.

Despite lackluster sales and six straight quarterly losses, Schoonover said the chain is on track for a turnaround. He sat down last week with the Richmond Times-Dispatch to discuss issues facing the chain. Here's an edited transcript of his interview:

. . .

Q:Can you make it? Can you really turn the chain around?

A. We have a good business. The consumer electronics business is a good business and a growth business.

We have the talent to do this work, people who have done this work or similar work elsewhere or have new ideas and fresh ideas.

We've got some really big spaces in the direct business and the services business that we can grow entirely new businesses out of. And there's a lot of opportunity in just fixing the basics within the company.

What gives me faith every day is that this company has resilience. I mean people pick themselves up, brush themselves off and keep moving. As long as we can keep the associates engaged and keep moving forward, we can do this. Q:You have a lot of stockholders and employees in the Richmond area. What can you tell them about where Circuit City is going and how the chain will get there?

A. I told the management team we were going to become a growth company again and we were going to return to profitable growth.

We're going to deal with some of the structural things Circuit City had faced during those most challenging years. We had a fleet of aging real estate, and we had a concept that didn't have a differentiated value proposition for our customers.

I also said, 'Let's find some businesses that can grow.' And we put the company in the services business [called firedog]. It's a very substantial business today. And a highly profitable business.

I think we have a strong plan. I think the strategy we have in place will make us different and better for tomorrow's customer. I think we have a great employee and associate value proposition.

A lot of people are very committed and dedicated to this company. It's sort of in their in genetic makeup.

I think this can be a great company and will be a great company. We need to stay the course on the tougher decisions. We need to adjust our execution plan as we learn how to do things better. Q:Investor Mark Wattles, the owner of Ultimate Electronics chain, has amassed a 6.5 percent stake in Circuit City. Are you open to letting him come in with fresh ideas and maybe a new way of doing things?

A. We believe there is a much stronger future than our current stock price is reflecting. [It closed Friday at $4.94.]

As we go in and think about the initiatives and the profitability that they will deliver over time, the management team, with the support of the board, wants to stay the course on this strategy.

I spend a lot of time in our competition's stores. I've stolen a lot of good ideas. We're always open for good ideas. We're very open-minded to any ideas any of our investors have. Q:Would you ever consider going private?

A. The company will always handle any strategic option responsibly. The board will, and I will.

We have shown continuous commitment to the longer turnaround of Circuit City. While we've adjusted our plan, based on learning [what] we're doing right and things we're not doing right, we've stayed the course on fundamentals.

We have the support of the board, and I have run this company on the behalf of the long-term shareholders. Q:What led to the decision to lay off 3,400 store employees last year and replace them with people willing to work for less?

A. In mid-October 2006, the television business profitability changed dramatically [when a major manufacturer sliced the cost of LCD televisions, which cut into profit margins] and drained a lot of our business model away.

We knew we had to make some structural changes to the business. We knew we had to do more with less.

It's not my favorite work . . . but I knew we had to get after it.

Because of the change in profitability, we had to do it at a much faster pace than I normally would have. We had to take work out of the box so we could free up labor dollars to better serve our customers.

It's a massive change anywhere. We had to do this quickly. We didn't have the luxury of a multiyear approach.

In my job, some of the difficult choices you have to make are around things like timing.

Frankly, we focused on the operation excellence side so much they started to lose sight of the value they add serving our customers. Q:In light of complaints about poor customer service since then, was laying off the employees the right decision to make?

A. I think the changes that we made to the field structure, including paying a competitive wage rate, were necessary. Some of those associates have rejoined us.

We had to get our cost structure in line. Most retailers do this as a normal course of business. We had to deal with it on a one-time basis.

With that said, there's always an opportunity to upgrade the customer experience. This is where we're focusing. Q:Do you expect customer loyalty in Richmond?

A. We have 3,100 associates here, so it's important we put our best foot forward.

Less than three blocks from [the corporate offices in western Henrico County], you have [The City store as] an experience for all the people in this building to see a different future for Circuit City. And that was not by accident.

I put that store there so people could touch and people could learn from it and people could help us make it better.

We're trying to stay plugged in to the community in a lot of ways. Q:What do you think the business will look like in five or 10 years?

A. I think it could be a great services business with retail roots.

I think it could be the best and most convenient multichannel retailer in our sector.

And I think we can have a very different but very cool store experience.

I think it can be a very different brand than it is today. Contact Louis Llovio at (804) 649-6348 or LLLovio@timesdispatch.com.