Circuit City shares continue slump

In a research note published Tuesday, RBC Capital Markets analyst Scot Ciccarelli downgraded the Richmond, Va., retailer to "Underperform" from "Sector Perform."

"We have previously voiced our concerns regarding the significant challenges Circuit City faces, however in light of recent performance we believe the specter of a worst case scenario is growing," he told investors. "In our opinion, the potential need to seek creditor protection will emerge if the holiday selling season proves weak and if vendors finally decide to tighten credit terms."

On Monday, Circuit City withdrew its outlook for the year and told investors that its second-quarter loss more than tripled as sales fell 10 percent.

Meanwhile Tuesday, Jefferies & Co. analyst Daniel Binder maintained his "Underperform" rating on Circuit City, saying he was skeptical whether the company would be able to "implement meaningful change in time for the holidays."

Circuit City shares fell 17 cents, or 15.7 percent, to 91 cents in morning trading Tuesday.