Circuit City to Cut 155 Stores, Jobs3 Nov, 2008 By: Erik Gruenwedel
Citing deteriorating liquidity and a weak economic environment, Circuit City Stores Nov. 3 said it would shutter 155 stores in the United States (beginning election day), scale back future store expansion and aggressively renegotiate select leases.
Circuit City said the closures would result in the termination of 17% of its 46,000-person workforce.
The bulk of unprofitable closures will take place in California (25 stores), Georgia (19), Illinois (13) and Arizona (13), among others. The company said the 155 stores generated about $1.4 billion in net sales.
The fiscally challenged Richmond, Va.-based No. 2 consumer electronics chain said waning consumer confidence, reduced third-quarter sales, gross margins, and restrictive actions taken by select vendors (tougher payment and credit terms) had resulted in an unmanageable situation for the company.
A third-party appraisal reported Circuit City’s estimated net orderly liquidation value to be lower than expected.
In addition global disruptions to the financial markets have made it difficult for vendors to insure Circuit City’s purchases.
“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,” said James Marcum, vice chairman and acting president and CEO of Circuit City.
Circuit City reported losses of more than $239 million in the most recent financial period, compared to losses of $62 million during the prior-year period.
Edward Woo, analyst with Wedbush Morgan Securities in Los Angeles, said the closures signaled the first stage of a probable Chapter 11 filing.
“It may actually be in their best interest [to file bankruptcy] so they can quickly renegotiate their leases,” Woo said.