Circuit City Stores Inc. said Monday it is pulling the plug on about 20 percent of its U.S. stores in an effort to return the nation's No. 2 consumer electronics retailer to profitability. The Merced store and several in the San Francisco Bay area are among those closing, but the stores in Modesto, Turlock, Manteca and Stockton were spared.
The Richmond, Va.-based company said it will shutter 155 of its more than 700 stores in 55 markets, including Phoenix and Atlanta, by Dec. 31, laying off about 17 percent of its domestic work force. Circuit City also said it will further reduce new store openings and plans to work with landlords to renegotiate leases, lower rent or terminate agreements.
The company said it expects the stores it is shuttering, which generated about $1.4 billion in net sales in fiscal 2008, will not open on Tuesday and store closing sales will begin on Wednesday.
The move comes as Circuit City heads into a crucial holiday shopping season that could determine its future, amid a slowdown in consumer spending that has even the least vulnerable retailers worried.
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"The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors," James A. Marcum, vice chairman and acting president and chief executive officer said in a statement. "The combination of these trends has strained severely our working capital and liquidity."
Marcum called the decision to close stores "difficult, but necessary."
Circuit City also provided updates on other aspects of its business, including restrictive actions taken by vendors, including limiting credit for purchases. But the company said while it is working to secure support from vendors, the "current mix of terms and credit availability is becoming unmanageable for the company."
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.
The company has had only one profitable quarter in the past year, posting a wider second-quarter loss in September with a 13 percent decline in sales at stores open at least a year. Its results have weakened as the company faces significant 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 determine how to substantially 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.
The NYSE said Circuit City 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 in trading since Sept. 30, when they closed at 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 following receipt of the notice.
A major Circuit City shareholder - Classic Fund Management AG, a Liechtenstein-based asset management company - also said in a regulatory filing last week that it cut its holdings to 8.2 million shares, or about 4.8 percent, from 9.5 million shares, or 5.6 percent. It did not disclose a reason for the change.
Circuit City has been under new leadership since late September when Chief Executive Philip J. Schoonover agreed to step down. He was replaced by Marcum, who was tapped to oversee Circuit City's multiyear turnaround efforts.