Circuit City to close 155 stores, cut 17% of domestic segment workforce to preserve cash

(RTTNews) - Monday, Circuit City Stores, Inc. (CC | Quote | Chart | News | PowerRating) said it would close 155 domestic segment stores, exit 12 markets in the U.S. and reducing future store openings, as the Richmond, Virginia-based consumer electronics retailer is facing severe liquidity shortage amid weak economic environment.

The stores identified for closure are located in 55 U.S. media markets. At October 31, the domestic segment operated 712 Superstores and 9 outlet stores in 165 U.S. media markets. At September 30, the international segment operated through 770 retail stores and dealer outlets in Canada.

The store closures are expected to reduce about 17% of the domestic segment workforce. For fiscal 2008, the stores that are being closed generated in total approximately $1.4 billion in net sales.

The company expects that the impacted stores would not open on November 4, and the store closing sales would begin on November 5. The company expects the sales to be completed no later than calendar year end.

The company also would not open at least 10 locations that were previously expected to be opened. The company, however, still expects to open up to two incremental stores during the remainder of fiscal 2009. Other than existing commitments, the company plans to suspend store openings beginning in fiscal 2010.

As a result of the store closures, Circuit City expects to reduce store operating, payroll and marketing expenses. The company also expects to incur charges in fiscal 2009 associated with these actions.

Further, Circuit City intends to begin immediately renegotiating certain of its existing leases with the goal of significantly lowering rents. In some cases, Circuit City may opt leases if rents aren't dropped.

The company attributed the latest moves in part to its deteriorating liquidity position and the continued weak macroeconomic environment. Waning consumer confidence and a significantly weakened retail environment have impacted negatively Circuit City's sales and gross profit margin to a greater degree than management had anticipated previously.

Following the company's second quarter results announcement, the company's liquidity position and the sharply worsened overall economic environment led some of Circuit City's vendors to take restrictive actions with respect to payment terms and the credit they make available to the company.

Additionally, the recent disruption in the financial markets has made it harder for certain of the company's vendors in obtaining credit insurance for the company's purchases. As a result, certain of the company's vendors have set more restrictive payment terms than in previous quarters, including in some cases requiring payment before shipment. Vendors also have limited the credit available to the company for purchases, including in some cases not providing customary increases in credit lines for holiday purchases.

Circuit City noted that the current mix of terms and credit availability is becoming "unmanageable" for the company.

To date, the company added it has been unable to collect an income tax refund of approximately $80 million that it believes it is owed from the federal government.

In addition, a recent third-party appraisal conducted for the company's asset-based credit facility resulted in a reduction of the estimated net orderly liquidation value of the company's inventory leading to a lower borrowing base and reduced availability for the current period.

Commenting on the developments, James Marcum, CEO, said, "Since late September, unprecedented events have occurred in the financial and consumer markets causing macroeconomic trends to worsen sharply. The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors."

Marcum added, "The combination of these trends has strained severely our working capital and liquidity, and so we are making a number of difficult, but necessary, decisions to address the company's financial situation as quickly as possible."

The retailer added that it is considering all available options and alternatives to restructure its business. The company plans to operate its business without interruption while talks are on with its lenders and advisors to determine the most appropriate restructuring alternatives.

Circuit City has been going through a tough phase in recent months as it laid off several workers, reported a wider second-quarter loss of $239.2 million, withdrew its financial outlook, delayed store openings and replaced a CEO. The company is also facing significant declines in traffic, evident by its 13.3% fall in the most recent quarter's comparable store sales, a key gauge of retailer performance. Meanwhile, heightened competition from rival Best Buy Co. (BBY | Quote | Chart | News | PowerRating) and others also hurt Circuit City. There were also bankruptcy speculation been swirling around the company.

The company also has much less cash this year than it did at the same time last year. According to the most recent earnings report, Circuit City had $92.5 million in cash or cash equivalents, a 78% drop from $424.4 million a year earlier.

Last week, the New York Stock Exchange warned Circuit City that its shares would be delisted if it doesn't bring its share price above $1 within six month. The company's shares have closed under a dollar in trading since September 30.

Circuit City stock closed Friday's regular trading session at 26 cents. The stock is currently up 12 cents, or 46.15% at 38 cents. For the past 52-weeks, the stock has been trading between 17 cents and $8.24.

For comments and feedback: contact editorial@rttnews.com Copyright(c) 2008 RealTimeTraders.com, Inc. All Rights Reserved

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index