Circuit City Stores Inc., the No. 2 electronics seller in the US after Best Buy, and a household name in the country, filed for bankruptcy protection today, thus becoming the latest retailer hurt by a worsening economic downturn.
The petition for Chapter 11 protection in the US Bankruptcy Court in Richmond, Virginia, listed $3.4 billion in assets and $2.32 billion in liabilities, driving the shares down 56 per cent before the New York Stock Exchange halted trading. The company said it is entering court protection owing Hewlett-Packard Co. $119 million and Samsung Electronics Co. $116 million. Sony Corp., Zenith Corp., Toshiba Corp., Garmin Ltd. and Nikon Inc. also feature amongst its creditors.
The retailer, which currently has 1491 operating stores in the US and Canada, will continue to do business and pay its workers while it restructures debt and its business operations. A company under Chapter 11 protection is allowed to continue operating while it develops a plan for financial reorganization.
Circuit City said it decided to file for bankruptcy at this time to ensure that it would have "adequate merchandise flow to stores during the important holiday season." The November-December holiday shopping months are crucial to retailers since the two months can account for 50 per cent or more of merchants' annual profits and sales.
On 29 September, Circuit City reported a loss of $239.2 million that was more than triple from a year earlier after sales fell for the sixth straight quarter. On 3 November, the company said it would close a fifth of its US stores and renegotiate leases on some locations to conserve cash. The closings will leave it with about 566 US stores and trim about 20 per cent of the 43,000-strong workforce. Circuit City also said today it cut 700 jobs in its regional and district store support department.
Circuit City tried to sell itself in May after Blockbuster Inc. made a preliminary offer that was later withdrawn. The retailer fired higher-paid workers and opened smaller stores to cut costs. Until the shift, the company's strategy had been to sell in locations as large as 44,000 square feet (4,090 square meters), which it calls ``superstores.'' (See: Blockbuster looking to acquire Circuit City for $1.35 billion)
The company said it has negotiated a commitment for a $1.1 billion "debtor-in-possession" (DIP) revolving credit facility to supplement its working capital. The company said the DIP credit would replace the company's $1.3 billion asset-based credit facility provided by its lenders. The retailer said the credit facility would give it immediate liquidity while it works to reorganize the business and enable it to pay its vendors and its roughly more than 40,000 employees.
"We recently have taken intensive measures to overcome our deteriorating liquidity position," James Marcum, Circuit City's acting president and chief executive officer, said in a statement. "The decision to restructure the business through a Chapter 11 filing should provide us with the opportunity to strengthen our balance sheet, create a more efficient expense structure and ultimately position the company to compete more effectively.''