RICHMOND, Va. - Circuit City Stores Inc. is pulling the plug on about 20 per cent of its U.S. stores in an effort to return America's No. 2 consumer electronics retailer to profitability.
The Richmond, Va.-based company said Monday it will shutter 155 of its more than 700 stores in 55 domestic markets by Dec. 31, laying off about 17 per cent of its American workforce - about 7,300 people based on about 43,000 total as of last February.
Circuit City also said it will further reduce new store openings and plans to work with landlords to renegotiate lower rents or terminate agreements.
The company expects the stores it is shuttering, which generated about $1.4 billion in annual sales, will not open Tuesday and will begin close-out sales Wednesday.
The move comes as Circuit City heads into a holiday shopping season that could determine its fate, amid economic weakness that has all retailers worried.
"The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors," stated James Marcum, Circuit City's vice-chairman and acting president and chief executive officer.
"The combination of these trends has strained severely our working capital and liquidity."
Marcum called the decision to close stores "difficult, but necessary."
None of the company's Canadian stores -- 510 retail stores and nearly 300 dealer outlets operated through its InterTAN subsidiary as The Source by Circuit City -- is affected by the restructuring.
The Canadian operation has "good strong sales and good earnings over the last several quarters," said Circuit City spokesman Bill Cimino.
He noted that Circuit City closed a number of stores in Canada in 2007 and that has been one of the factors with keeping the remainder open as well as a relatively stronger Canadian economy.
"But also, the operations are a little bit different. The Canadian stores are smaller, a little different format and a little different product mix than the U.S. stores as well," Cimino said.
Cimino said the decision to pull out of 12 markets in the United States was based on store performance.
"There are some markets where we have more competitors, there are some markets where we have less competitors, in all, we're closing 155 stores that were underperforming," Cimino said.
Circuit City also noted restrictive actions taken by its vendors, including limiting credit for purchases. The company said it is working to secure support from vendors, but the "current mix of terms and credit availability is becoming unmanageable."
It also said it has been unable to collect an income tax refund of about $80 million that Circuit City believes it is owed from the federal government.
Standard & Poor's Equity Research analyst Michael Souers told investors that Circuit City's decision was "rational and necessary to attempt to conserve capital," but said restrictive measures by some vendors may "ultimately prove too challenging."
"We think there is a fair chance (Circuit City) will be forced to file for Chapter 11" bankruptcy protection, Souers wrote.
The company has had only one profitable quarter in the past year, weakened by declines in traffic, heightened competition from rival Best Buy Co. and others, and a weakened brand position.
Circuit City, which is reviewing its operations while exploring strategic alternatives, has been working with advisers to improve its operating and financial performance.
The company said last week that the New York Stock Exchange has warned it that its stock price is not high enough for continued listing.
Circuit City has been under new leadership since late September when Philip Schoonover agreed to step down as CEO, and Marcum was tapped to oversee a multiyear turnaround effort.
The company said last week it received a warning from the New York Stock Exchange that its stock price is not high enough for continued listing. The NYSE said the shares had an average closing price of less than $1 over 30 consecutive trading days as of Oct. 22, falling short of the exchange's requirement. Its shares have closed under a dollar since Sept. 30, when they fell to 76 cents. Shares have traded between 17 cents and $8.24 in the last year.
In order to regain compliance with the NYSE, Circuit City's common stock share price and the average share price over a consecutive 30-trading-day period must both exceed $1 within six months of it receiving the notice.
A major Circuit City shareholder - Classic Fund Management AG, a Liechtenstein-based asset management company - also said last week that it cut its holdings to 8.2 million shares, or about 4.8 per cent of the company, from 9.5 million shares, or 5.6 per cent.
