Monday, November 03, 2008

CIRCUIT CITY TO CLOSE 155 STORES

Circuit City Stores, Inc. 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.

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.

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."

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.

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.

1 Comments:

Anonymous adam hartung said...

Does anyone remember that Circuit City, just a few years ago, was the best performing company in Jim Collins' book "Good to Great"? Obviously, Mr. Collins' approach to management is worth some reconsideration given the fall of Circuit City. It would seem a new approach to management would be worth considering. Read more at http://www.ThePhoenixPrinciple.com

12:45 AM  

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