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Tweeter Home Entertainment Group said it has insufficient working capital to cover short- and long-term costs and may need to file for reorganization under Chapter 11 of the bankruptcy code.
Tweeter, the largest member of the Professional Retailers Organization (PRO Group), said its cash flow is being drained by costs associated with the previously announced closing of 49 stores and two distribution centers, and by lump-sum payments to landlords.
Tweeter has reached lease termination settlements with 24 landlords and is in negotiations with another 40 to reduce the cost of the closings, chief financial officer Greg Hunt said. The retailer is also attempting to raise capital by selling its 19 percent stake in Tivoli, by taking on additional debt, or through equity financing. The chain currently has access to about $12 million in credit.
In a conference call, president/CEO Joe McGuire said there is no timeframe for a Chapter 11 reorganization, and that the company is weighing its options on a week-to-week basis. He said that Tweeter's vendors have been kept apprised of the situation and are "well aware of the risk," and confirmed that the chain is currently conducting business with most manufacturers on a cash basis.
Tweeter has closed six of the 49 stores to date, with the balance to be closed by June, and has profitably sold about half of the targeted locations' $35 million in inventory. The stores represent about one-third of the chain, and McGuire said there are no plans to shut additional units should the company file Chapter 11.
The warning came with the release of Tweeter's results for its second fiscal quarter ended March 31. Net and same-store sales from continuing operations both declined 13 percent during the three months, with total revenue falling to $163 million.
Net loss for continuing operations was $35.2 million, compared to net income of $400,000 during the year-ago period, due largely to restructuring charges related to the store closings.
On the product front, sales of rear projection TVs at remaining stores fell 44 percent during the period, while revenue from sales of plasma TVs declined 35 percent. The declines were partially offset by a 72 percent hike in LCD TV dollar volume. Revenue from installation services was flat, and sales of audio receivers grew 1 percent.
Merchandising senior VP Philo Pappas acknowledged that plasma is becoming a smaller part of Tweeter's video mix, although the technology may receive a boost from the first wave of 1,080p sets, which are hitting store floors now.
Despite soft TV sales, category margins have improved thanks to Tweeter's exit from the entry level tier, McGuire said.
McGuire added that Tweeter stores updated with the company's new Playground format continue to outperform their older counterparts in margin, sales and in-home installations within their respective markets, and that rolling the concept into the remaining 97 stores is central to the company's strategy going forward.
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