Movie Gallery Can't Meet Credit Requirements, Looking at Sale2 Jul, 2007 By: Chris Tribbey
Movie Gallery has not met its credit requirements due to poor second quarter sales, and may entertain a possible sale or merger, the company reported today.
Shares of the No. 2 rentail chain, which opened the day just under $2, were trading for less than 85 cents in after-hours activity.
“While we expected the rental industry to be soft in the first half of 2007, our results for the first two months of the year were slightly ahead of our refinancing plan,” said Joe Malugen, chairman, president and CEO of Movie Gallery. “However, during the last four months, we, like most of the industry, have experienced a sharp decline in our rental business, which has put unexpected pressure on our financial performance.”
The company said business would continue to operate “without interruption,” while it has drawn the remaining funding available under its credit line, and its liquidity now consists of roughly $50 million of cash in hand.
Movie Gallery added that it had hired an independent financial advisor, and had expanded the duties of a restructuring advisory firm to “include helping the company evaluate available strategic and restructuring alternatives.”
Those include “a number of alternatives, including asset divestitures, recapitalizations, alliances with strategic partners, and a sale to or merger with a third party.” The company may also speed up the closure of unprofitable stores and the merger of stores in certain markets.
“With the help of our advisors, we are actively pursuing every avenue to restore the financial soundness of the company,” Malugen said. “We are committed to working with our lenders and other stakeholders in a transparent way to remedy the current situation.”
Movie Gallery operates more than 4,600 stores in the United States and Canada under the brands Movie Gallery, Hollywood Video and Game Crazy.