- The Washington Times - Tuesday, November 4, 2008

RICHMOND | As the lights go out at about 20 percent of Circuit City’s stores, the company is hoping that by closing hundreds of stores and cutting thousands of jobs it can survive consumers who are reluctant to spend and vendors less eager to give it credit.

But analysts say the moves announced Monday renewed the specter of bankruptcy hanging over the nation’s No. 2 consumer electronics retailer heading into a holiday shopping season that could determine its future.

“Clearly, [Circuit City] is frantically working to keep itself alive,” JP Morgan analyst Christopher Horvers wrote in a note to investors.

Circuit City Stores Inc. is closing 155 of its more than 700 U.S. stores by Dec. 31. The stores are spread throughout 28 states. It is laying off about 17 percent of its domestic work force, which could affect up to 7,300 people.

James A. Marcum, vice chairman and acting president and chief executive, called the decision to close stores “difficult, but necessary.”

“The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors,” Mr. Marcum said. “The combination of these trends has strained severely our working capital and liquidity.”

Based on nearly 43,000 employees as of Feb. 29, the layoffs could affect up to about 7,300 workers. The company said the number would likely be lower in part because employees in some markets may become employed at other stores. It would not give further details.

Richmond-based Circuit City also said it will further cut back on new store openings and plans to work with landlords to renegotiate leases, lower rent or terminate agreements while it deals with tightening credit from its vendors.

The company said it is working to secure support from vendors, but the “current mix of terms and credit availability is becoming unmanageable.”

Circuit City’s decision to close stores was “rational and necessary to attempt to conserve capital,” Standard & Poor’s Equity Research analyst Michael Souers told investors, but added that 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, Mr. Souers wrote.


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