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Wednesday, 5 November, 2008 1:33 AM
Circuit City Stores, Inc.
Provides Update on Liquidity and Announces Store Closing Plan
Company Plans to
Close 155 Stores, Further Reduce New Store Openings and Renegotiate
Certain Leases
PHOTO
BY JASON RZUCIDLO / ©AMERICAJR.com
Five
metro Detroit Circuit City stores are closing including this one
at 5600 Mercury Drive in Dearborn, Mich.
RICHMOND,
Va. -- Circuit City Stores,
Inc. (NYSE:CC) today provided an update on its liquidity position
and
its previously announced ongoing comprehensive business review.
Due in
part to its deteriorating liquidity position and the continued weak
macroeconomic environment, the company has decided to take certain
restructuring actions immediately, including closing 155 domestic
segment stores, reducing future store openings and aggressively
renegotiating certain leases. The company also is considering all
available options and alternatives to restructure its business.
Business
and Liquidity Update
Over the
past several weeks, a number of factors have impacted severely
the company's liquidity position. These factors include the following:
-- Waning
consumer confidence and a significantly weakened retail
environment have impacted negatively the company's sales and gross
profit margin rate 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 contributed to certain of the company's vendors experiencing
insurmountable challenges with obtaining credit insurance for the
company's purchases. As a result of this and other considerations,
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. While management
is
working diligently to secure the support of its vendors and believes
it
has maintained good relationships with these important partners,
the
current mix of terms and credit availability is becoming unmanageable
for the company.
-- To date,
the company has been unable to collect an income tax refund
of approximately $80 million that the company believes it is owed
from
the federal government.
-- Due primarily
to the weakened economic environment and its potential
impact on the timing of sales of the company's inventory and costs
and
expenses associated with such sales, 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. This valuation adjustment was made despite
the mix
of merchandise remaining consistent with the previous appraisal
in
November 2007. This reduction has led to a lower borrowing base
and
reduced availability for the current period compared with what the
company had expected previously.
James A.
Marcum, vice chairman and acting president and chief executive
officer of Circuit City Stores, Inc. 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. 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."
Domestic
Segment Real Estate Actions
As a result
of the company's ongoing asset productivity assessment and
working capital situation, the company has determined to take the
following initial actions with respect to its domestic segment real
estate portfolio and strategy:
-- Close
155 stores and exit certain markets: Circuit City plans to
close 155 stores that are underperforming or are no longer a strategic
fit for the company. The stores identified for closure are located
in
55 U.S. media markets, of which Circuit City will exit 12 U.S. media
markets.
The list
of closing stores can be found by visiting the company's
investor information home page at http://investor.circuitcity.com/
and
clicking the link regarding today's announcements. The company expects
that impacted stores will not open on Tuesday, November 4, and the
store
closing sales will begin on Wednesday, November 5. The company expects
the sales to be completed no later than calendar year end.
For fiscal
2008, the stores that are being closed generated in total
approximately $1.4 billion in net sales. When results were viewed
at
the individual comparable store level, the closing stores, as compared
to the stores remaining open, on average had lower net sales, a
lower
close rate and a lower gross profit margin rate. The stores, on
average, were also unprofitable when marketing expenses were allocated
to the individual store-level results.
Circuit
City will continue to honor its customer commitments and serve
its guests through 566 stores in 153 U.S. media markets, via its
Web
site at www.circuitcity.com
and via phone at 1-800-THE-CITY
(1-800-843-2489). During this transitional period, Circuit City
is
executing a plan to minimize disruption to the operations of stores
that
are remaining open. No international segment stores are closing
as a
result of the real estate plans announced today.
-- Further
reduce new store openings: The company has revised its store
opening plans for the current fiscal year and will not open at least
10
locations that were previously expected to be opened. The company
still
expects to open up to two incremental stores during the remainder
of
fiscal 2009. As previously announced, other than existing commitments,
management intends to suspend store openings beginning in fiscal
2010.
-- Renegotiate
certain existing leases: Circuit City intends to begin
immediately renegotiating certain of its existing leases with the
goal
of significantly lowering rents. In some cases, the company may
choose
to negotiate with landlords to exit leases if rents are not reduced.
The company also plans to work with landlords to terminate the leases
for the stores included in today's closing announcement, as well
as
leases for a number of inactive locations that were closed previously
and for the locations that are no longer being opened.
As a result
of the store closures, Circuit City expects to reduce store
operating, payroll and marketing expenses. The store closures will
result in a reduction of approximately 17 percent of the domestic
segment workforce. The company also expects to incur charges in
fiscal
2009 associated with the above real estate actions. The company
is
currently evaluating the benefits and expenses associated with these
changes, which are subject to the outcome of negotiations and store
closure agreements. Presentation on the financial statements is
currently being evaluated for accounting treatment.
"We
deeply regret the impact today's announcement will have on our
associates, our guests and the communities where these stores are
located. We truly are grateful to each of our associates for their
many
contributions to the company. We are also grateful for the loyalty
and
support we have received from our guests in the impacted communities.
Circuit City will continue to serve guests through 566 stores in
153
U.S. media markets, via its Web site at www.circuitcity.com
and via
phone at 1-800-THE-CITY (1-800-843-2489)," concluded Marcum.
Evaluating
All Options
As a result
of unfavorable macroeconomic conditions and the company's
deteriorating liquidity position, the company is considering all
available options and alternatives for the business. Consistent
with
this evaluation, the company will continue to take appropriate actions
to conserve cash, reduce expenses and improve liquidity. In addition,
the company is continuing to evaluate additional near-term cost
reduction initiatives that may be necessary to address its financial
condition. The company is also in negotiations with its lenders
and
other third parties regarding various financing alternatives.
The company
plans to operate its business without interruption while it
engages in discussions with its lenders and works with advisors
to
determine the most appropriate restructuring alternatives. The company
can make no assurance that the discussions will result in any agreements
or transactions.
About
Circuit City Stores, Inc.
Circuit
City Stores, Inc. (NYSE:CC) is a leading specialty retailer of
consumer electronics and related services. 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. Circuit City also
operates Web sites at www.circuitcity.com,
www.thesource.ca
and
www.firedog.com.
Click
Here to view the complete list of store closings
Source:
Circuit City Stores, Inc.
PHOTO
BY JASON RZUCIDLO / ©AMERICAJR.com
Two
shoppers at the Dearborn, Mich. store who realize it was closed
for the day.
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