Movie Gallery Files Chpt. 11, Plans Store Closings

By Greg Tarr -- TWICE, 2/3/2010

Wilsonville, Ore. - Movie Gallery, which operates the Movie Gallery, Hollywood Video and Crazy Games home entertainment rental chains, filed for Chapter 11 bankruptcy protection Tuesday and announced plans to close 805 poorly performing U.S. stores.

The second bankruptcy action in three years resulted from falling sales in the face of a tough economy and new competition, including online services, Video On Demand operations and rental kiosks, the company said. It was also hurt by falling prices on Nintendo Wii video games.

Movie Gallery and four affiliates filed for bankruptcy in the Eastern District of Virginia. The Movie Gallery Canada affiliate was not part of the filing.

The announced store closings affect one-third of the company's 2,415 U.S. stores. It is expected to impact several thousand of the company's roughly 19,100 employees.

The company said it has hired Gordon Brothers Group to help liquidate the stores, and Moelis & Co. as its investment banker.

Movie Gallery filed for bankruptcy in October 2007, but emerged the following year.

The company reported that revenue fell to $1.4 billion in 2009 from $2 billion in 2008, and its fourth-quarter operating loss increased more than 52 percent to $129.3 million from $84.8 million.

More than $540 million is owed in principal to first- and second-lien lenders, the company said.

The company started in 1985 in Dothan, Ala., and once operated nearly 4,800 stores, following its 2005 purchase of Hollywood Entertainment Corp.