RICHMOND, Va., Nov. 3 /PRNewswire-FirstCall/ -- 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.
Forward-Looking Statements
Statements made in this release, other than those concerning historical
financial information, may be considered forward-looking statements, which are
subject to risks and uncertainties, including without limitation: (1) the
impact of today's announcement on ongoing store operations, (2) the company's
ability to locate available sources of liquidity and to negotiate financing
alternatives to address its liquidity needs, (3) the impact of decisions
following the company's current evaluation of all restructuring alternatives,
(4) any further reductions in availability under the company's current credit
facility, (5) the willingness and ability of the company's vendors to ship
products to the company, (6) any further deterioration in the macroeconomic
environment or consumer confidence, (7) the success of the company's store
liquidators, and the prices obtained, in selling inventory in the stores that
the company is closing, (8) the actual cost savings achieved through the
company's various cost-saving measures, (9) the expenses incurred by the
company for the store closings and other potential restructuring activities,
(10) the company's receipt of the income tax refund from the federal
government, (11) the company's success in negotiating lease terminations and
reduced rents, (12) the impact of pricing and promotional activities of the
company's competitors and the company's response to those actions, (13) the
pace of commoditization of consumer electronics, (14) the impact of a
significant change in the relationships or credit terms with key vendors, (15)
the company's ability to control and leverage expenses as a percentage of
sales, (16) the company's ability to generate sales and margin growth through
expanded service offerings, (17) the company's ability to continue to generate
strong sales growth in key product categories and through its direct sales
channel, (18) the impact on revenue and margin of initiatives related to
transforming retail processes and upgrading merchandising, point-of-sale and
information systems and the costs associated with these investments, (19) the
success of the company's initiatives with respect to the upcoming holiday
season, (20) regulatory and litigation matters, (21) the company's strategic
evaluation of the international segment, including the impact of changes in
credit markets, (22) the company's ability to recover its deferred tax assets
through future profitability, and (23) the impact of future decisions made
regarding the ongoing comprehensive review of the company's business.
Discussion of additional factors that could cause actual results to differ
materially from management's projections, forecasts, estimates and
expectations is set forth under Management's Discussion and Analysis of
Results of Operations and Financial Condition in the Circuit City Stores, Inc.
annual report on Form 10-K for the fiscal year ended February 29, 2008, the
quarterly report on Form 10-Q for the fiscal quarter ended August 31, 2008,
and in the company's other SEC filings. A copy of the annual report is
available on the company's investor information Web site at
http://investor.circuitcity.com.
(Logo: http://www.newscom.com/cgi-bin/prnh/20010709/CCLOGO )
SOURCE Circuit City Stores, Inc.
