Circuit City Closes 19 Stores, Outlines Expansion Strategy
By Alan Wolf -- TWICE, 2/23/2004
RICHMOND, VA. — Circuit City has shut 19 under-performing stores in 12 states.
Alan McCollough, chairman/ CEO, said the affected trade areas "can no longer support" the stores, which have "no reasonable expectation of positive cash flow in the near future." With the exception of the Topeka, Kan., and Omaha, Neb., markets, which the chain is exiting entirely, most of the designated stores are located near other Circuit City units, the company said.
The 19 stores represent about 3 percent of Circuit City's 600-unit store base, and had combined revenues of $151 million for calendar year 2003. According to Lehman Brothers analyst Alan Rifkin, their average annual revenue of $7.9 million was about half the corporate average of $15.7 million per store.
The stores were closed for one day earlier this month in preparation for closeout sales of display merchandise that began Feb. 10. McCollough said the decision to shutter the stores was difficult due to the impact on employees, but will allow the company to "better focus attention on improving the performance" of the remaining locations.
In a research note, Rifkin praised management's "judicious approach to improving profitability," but suggested that the company would need to shut some 60 stores in total in order to reach its profit goals.
Circuit City is also relocating seven stores this month, as part of its plan to move 18 units in fiscal 2004. The company also anticipates opening 65 to 70 stores in its next fiscal year, after which approximately 30 percent of its store base will have been relocated, newly constructed or fully remodeled since fiscal 2001.
The company said it would likely incur about $35 million in after-tax expenses in the current quarter as a result of lease terminations, fixed-asset disposals, severance and other costs related to the closings.
The shuttered stores are located in Arkansas, California (Los Angeles), Florida, Georgia, Illinois, Indiana, Ohio, Minnesota, Missouri, Texas, Virginia and the state of Washington.
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