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Circuit City files for bankruptcy
One week after announcing big store closures and job cuts, the company is entering Chapter 11 bankruptcy protection -- and hoping to survive the holiday shopping season. Meanwhile, in other news of the grim economy: DHL Express announces major cuts to operations.
With the holiday season fast approaching, the nation's second-biggest electronics retailer is struggling to avoid getting unplugged.
One week after announcing it would close 155 of its stores, Circuit City (CC, news, msgs) filed for Chapter 11 bankruptcy protection today and said it would cut 700 additional jobs.
However, the electronics chain said it plans to stay open for business as the busy holiday shopping season approaches. Chapter 11 of the bankruptcy code allows a company to hold off creditors and continue operations while it develops a reorganization plan.
The chain had already announced thousands of layoffs associated with the store closures, which amount to roughly 20% of its retail outlets.
The Circuit City announcement was one of two big pieces of news today highlighting the weak state of the U.S. economy. From Germany, Deutsche Post announced that it will close all of its DHL Express service centers, cut 9,500 jobs in the United States and eliminate U.S.-only domestic shipping by land and air.
The company cited heavy losses and fierce competition with rivals UPS (UPS, news, msgs) and Fedex (FDX, news, msgs). It noted that new job cuts -- part of a wider plan to curtail U.S. operations -- are in addition to 5,400 it already announced. 'This isn't a surprise'
Circuit City has been struggling for months; as far back as April, reports had the chain hiring Goldman Sachs (GS, news, msgs) to look into the possibility of a sale. But over the last few months, the company has been struggling as nervous consumers spend less and credit has become tighter -- and the retail industry overall now faces what's expected to be the weakest holiday season in decades.
"This isn't a surprise," JPMorgan analyst Christopher Horvers said, adding that the reorganization could help the company get out of leases for certain bad store locations.
"At the end of the day I think it's really about an inventory position," Horvers said. "If they can get inventory into the stores, I can think they'll remain competitive."
Circuit City, which has had only one profitable quarter in the past year, has faced significant declines in traffic and heightened competition from rival Best Buy (BBY, news, msgs) and others. The filing cited $3.4 billion of assets and $2.32 billion of debts as of Aug 31, and more than 100,000 creditors, according to Reuters.
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The company's biggest creditors are its vendors: Hewlett-Packard (HP, news, msgs) has a $118.8 million claim, followed by Samsung, $115.9 million; Sony (SNE, news, msgs), $60 million; Zenith, $41.2 million; and Toshiba (TOSBF, news, msgs), $17.9 million. Smaller creditors include GPS navigation system maker Garmin (GRMN, news, msgs), Nikon (NINOY, news, msgs), Lenovo (LNVGY, news, msgs), Eastman Kodak (EK, news, msgs) and Mitsubishi (MSBHY, news, msgs).
Horvers added, "I think it's encouraging that they were able to secure financing." Circuit City said it had lined up $1.1 billion in loans to provide working capital while it is in bankruptcy protection. That replaces a $1.3 billion asset-backed loan it had been using.
Loans to operate while in bankruptcy are called debtor-in-possession, or DIP, loans.
"That's a big DIP in the current market," said John Penn, a partner at Haynes & Boone who is not involved in the case. "To secure that size DIP now is quite an achievement. With the news of the cuts last week -- and vendors wanting to know they can get paid -- having a recognizable source like a DIP can calm a lot of vendor concerns."In addition to the store closures and job cuts announced last week, Circuit City also said last week that it will further cut back on new store openings and planned to work with landlords to renegotiate leases, lower rent or terminate agreements while it dealt with tightening credit from its vendors.
Circuit City posted a wider second-quarter loss in September with a 13% decline in sales at stores open at least a year. The company has been under new leadership since late September, when Chief Executive Philip J. Schoonover agreed to step down. He was replaced by James A. Marcum, who is now vice chairman and acting president and chief executive.
Shares in Circuit City have traded under $1 for more than a month and the company received a warning about that last month from the New York Stock Exchange.
One week after announcing big store closures and job cuts, the company is entering Chapter 11 bankruptcy protection -- and hoping to survive the holiday shopping season. Meanwhile, in other news of the grim economy: DHL Express announces major cuts to operations.
With the holiday season fast approaching, the nation's second-biggest electronics retailer is struggling to avoid getting unplugged.
One week after announcing it would close 155 of its stores, Circuit City (CC, news, msgs) filed for Chapter 11 bankruptcy protection today and said it would cut 700 additional jobs.
However, the electronics chain said it plans to stay open for business as the busy holiday shopping season approaches. Chapter 11 of the bankruptcy code allows a company to hold off creditors and continue operations while it develops a reorganization plan.
The chain had already announced thousands of layoffs associated with the store closures, which amount to roughly 20% of its retail outlets.
The Circuit City announcement was one of two big pieces of news today highlighting the weak state of the U.S. economy. From Germany, Deutsche Post announced that it will close all of its DHL Express service centers, cut 9,500 jobs in the United States and eliminate U.S.-only domestic shipping by land and air.
The company cited heavy losses and fierce competition with rivals UPS (UPS, news, msgs) and Fedex (FDX, news, msgs). It noted that new job cuts -- part of a wider plan to curtail U.S. operations -- are in addition to 5,400 it already announced. 'This isn't a surprise'
Circuit City has been struggling for months; as far back as April, reports had the chain hiring Goldman Sachs (GS, news, msgs) to look into the possibility of a sale. But over the last few months, the company has been struggling as nervous consumers spend less and credit has become tighter -- and the retail industry overall now faces what's expected to be the weakest holiday season in decades.
"This isn't a surprise," JPMorgan analyst Christopher Horvers said, adding that the reorganization could help the company get out of leases for certain bad store locations.
"At the end of the day I think it's really about an inventory position," Horvers said. "If they can get inventory into the stores, I can think they'll remain competitive."
Circuit City, which has had only one profitable quarter in the past year, has faced significant declines in traffic and heightened competition from rival Best Buy (BBY, news, msgs) and others. The filing cited $3.4 billion of assets and $2.32 billion of debts as of Aug 31, and more than 100,000 creditors, according to Reuters.
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- Biggest creditors: HP, Samsung, more
The company's biggest creditors are its vendors: Hewlett-Packard (HP, news, msgs) has a $118.8 million claim, followed by Samsung, $115.9 million; Sony (SNE, news, msgs), $60 million; Zenith, $41.2 million; and Toshiba (TOSBF, news, msgs), $17.9 million. Smaller creditors include GPS navigation system maker Garmin (GRMN, news, msgs), Nikon (NINOY, news, msgs), Lenovo (LNVGY, news, msgs), Eastman Kodak (EK, news, msgs) and Mitsubishi (MSBHY, news, msgs).
Horvers added, "I think it's encouraging that they were able to secure financing." Circuit City said it had lined up $1.1 billion in loans to provide working capital while it is in bankruptcy protection. That replaces a $1.3 billion asset-backed loan it had been using.
Loans to operate while in bankruptcy are called debtor-in-possession, or DIP, loans.
"That's a big DIP in the current market," said John Penn, a partner at Haynes & Boone who is not involved in the case. "To secure that size DIP now is quite an achievement. With the news of the cuts last week -- and vendors wanting to know they can get paid -- having a recognizable source like a DIP can calm a lot of vendor concerns."In addition to the store closures and job cuts announced last week, Circuit City also said last week that it will further cut back on new store openings and planned to work with landlords to renegotiate leases, lower rent or terminate agreements while it dealt with tightening credit from its vendors.
Circuit City posted a wider second-quarter loss in September with a 13% decline in sales at stores open at least a year. The company has been under new leadership since late September, when Chief Executive Philip J. Schoonover agreed to step down. He was replaced by James A. Marcum, who is now vice chairman and acting president and chief executive.
Shares in Circuit City have traded under $1 for more than a month and the company received a warning about that last month from the New York Stock Exchange.
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