Friday, October 24, 2008
By Erik Gruenwedel | Posted: 20 Oct 2008
Financially challenged Circuit City Stores reportedly is considering closing more than 20% of its stores and cutting thousands of jobs in an effort to remain solvent.
The Wall Street Journal, citing sources close to the situation, reported the Richmond, Va.-based No. 2 consumer electronics retail chain had earmarked at least 150 stores for closure — a move that would allow it to short-sell $350 million worth of inventory to help fund ongoing operations.
The Journal also reported that Circuit City retained a law firm earlier this month that specializes in bankruptcy. It operates 705 superstores and nine outlet stores in the United States.
Spokesperson Jim Babb didn’t deny the report but said it was company policy not to comment on rumors and speculation.
He said management, the board and strategic financial advisors continue to review all aspects of the business to determine the best methods of accelerating a turnaround and delivering substantially improved operating and financial performance.
“This includes assessing the productivity of our asset base and making decisions that are in the best long-term interest of Circuit City and our stakeholders,” Babb said.
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.
The chain previously said it had suspended 16 of 26 planned store openings for fiscal 2009, and that all store openings slated for fiscal 2010 had been postponed.
Analysts have had Circuit City on a deathwatch for some time, and they remain nonplussed.
“You can tell what the stock market thinks based on the stock price,” said analyst Edward Woo of Wedbush Morgan Securities in Los Angeles. “I would concur that the market probably has the best guess as to what is going to happen with the company.”
Tom Arnold, professor of finance at the University of Richmond and longtime observer of Circuit City’s operations, believes any possible store closures won’t be enough to save the chain. Attempts to liquidate inventory would probably fall short given the economy and hint of bankruptcy, he said, which would likely drive consumers to go elsewhere out of concerns Circuit City would not be able to honor extended warranties or returns.
“The holiday season has yet to start, and this news puts Circuit City decidedly behind its competitors,” Arnold said. “It does not look good.”