Circuit City plans to close 62 Stores in Canada

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Circuit City Stores (CC), the nation's No. 2 consumer electronics retailer, said Thursday it plans to close seven domestic Superstores, a Kentucky distribution center and 62 company-owned stores in Canada to cut costs and improve its financial performance.

The closings will take place over the next six months at an expected total cost of $85 million to $105 million, all to be incurred in the current fourth fiscal quarter, which ends Feb. 28, Circuit City said.

“Because of the intensified gross margin pressures that we saw in the third quarter within the flat panel television category, we launched efforts to accelerate the timing of planned initiatives to improve sales and gross margin, as well as improve the efficiency of our expense structure,” said Philip J. Schoonover, chairman, president and chief executive officer of Circuit City Stores. “We now have completed the planning work and are taking immediate action on the first of those recommendations. Other recommendations are being developed, and we expect to implement them over the next six months. The steps we are taking today represent the initial efforts toward getting our cost structure more in line with today’s marketplace.”

Circuit City operates through 643 Superstores and 12 other locations in 158 U.S. markets. The international segment has more than 800 retail stores and dealer outlets in Canada. The company also sells it products online.

Circuit City has also changed its executive management structure to improve execution and accountability, to better align all retail channels and to improve the coordination between merchandising and marketing.

David L. Mathews will lead the merchandising, marketing, services and supply chain teams. All retail channels, including all domestic and international retail stores and Circuit City Direct, will report to George D. Clark, Jr., executive vice president, multi-channel sales.

“These leadership role changes will foster improved teamwork and execution while driving accountability across the organization,” Schoonover said. “I believe that world-class multi-channel retailers need to offer a seamless experience to their customers. As such, we have taken steps to fundamentally re-align our businesses. To increase speed and limit bureaucracy, we have restructured key business teams and cross-functional structures that are responsible for the day-to-day operations of the company as well as support our longer-term strategic direction.We also have reshaped the larger organization, bringing all retail channels under one leader and all merchandising, services and marketing efforts under another. We believe these actions will help our Associates to offer the seamless experience that our customers desire.

In addition, Mike Foss, executive vice president and chief financial officer, will focus on driving shareholder value through improving the overall productivity of the business, optimizing the capital structure and identifying new growth opportunities.”

The company also announced that Douglas T. Moore, executive vice president, chief merchandising officer, has left the company.

The company also said it will shut down its Rapid Satellite business, which was being offered for sale. Circuit City purchased the small satellite-television retailer in 2005.

Raymond James & Associates analyst Dan Wewer endorsed Circuit City's restructuring effort.

"We believe it is critical for all consumer electronics retailers, including Circuit City, to lower their cost structure given ongoing pressures on gross margin rate," Wewer said in a research brief. "Frankly, we had anticipated Circuit City would look to close all of its Canadian businesses given their poor performance."

In other moves, the company expects by the end of this month to close seven domestic Superstores. The stores generated $71 million in revenue during the twelve months ended December 31, 2006. These stores either are cash flow negative or are very low-volume, low-cash flow stores with older formats that are being closed for brand image reasons.

Circuit City has long struggled for market share against Best Buy, and analysts have said each of Best Buy's locations bring in about twice as much revenue as its smaller rival. Both have seen fierce competition from Wal-Mart Stores (WMT), which lowered prices for key products such as flat-panel televisions this past holiday shopping season, forcing Circuit City and Best Buy to follow suit and cutting into their third-quarter results.

Circuit City lost $16 million in the third quarter; Best Buy's third-quarter profit rose nearly 9% to $150 million. Circuit City will report its fourth-quarter results in early April, Cimino said.

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