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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, including multiple locations in areas like Phoenix and Atlanta. 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," Marcum said in a statement. "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, Va.-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, Souers wrote.
Shares in Circuit City, which have traded under $1 for more than a month, rose 10 cents, or about 38 percent, to 36 cents in Monday trading.
Circuit City has had only one profitable quarter in the past year and posted a wider second-quarter loss in September with a 13 percent decline in sales at stores open at least a year. It faces significant declines in traffic and heightened competition from rival Best Buy Co. and others.
The company said the stores it is shuttering generated about $1.4 billion in net sales in fiscal 2008, an average of $9 million per location. The average net sales per U.S. store last year were about $16 million.
"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," said company spokesman Bill Cimino.
Circuit City has also been working with advisers to determine how to substantially improve its operating and financial performance.
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. In order to regain compliance, 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 percent of the company, from 9.5 million shares, or 5.6 percent.
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.
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On the Net:
Circuit City: http://investor.circuitcity.com/announcement.cfm
