Circuit City shares climb on store closure report

[October 21, 2008]  CHICAGO (AP) -- Shares of beleaguered electronics retailer Circuit City Stores Inc. rose Monday after a report said the chain may close at least 20 percent of its stores to shore up its finances and avoid filing for bankruptcy protection.

Citing "several people familiar with the matter," The Wall Street Journal said the nation's second-largest consumer electronics chain was considering closing at least 150 locations and slashing thousands of jobs to avert a Chapter 11 filing.

Closing dozens of stores would allow the retailer to liquidate $350 million in inventory that could be used to pay real-estate costs, including leases on abandoned sites.

Circuit City spokesman Jim Babb said the chain wouldn't comment on the details of the report or "rumors" as it continues "a comprehensive review of all aspects of our business" in order to accelerate its turnaround plan and boost its financial and operating performance.

"As previously announced, this includes assessing the productivity of our asset base and making decisions that are in the best long-term interest of Circuit City and our stakeholders," he said in a statement Monday.

Investors appeared pleased at the report, sending the company's shares up more than 20 percent in morning trading and providing a small gain for the stock that's lost more than 90 percent of its value this year. But shares closed down 4 cents, or 10.3 percent, to 35 cents.

Standard & Poor's analyst Michael Souers said he was maintaining his "Hold" rating on the retailer, but slashed his price target in half to $1.

"While we would applaud (Circuit City) for its attempt to stay solvent, we remain highly pessimistic on holiday sales, and on consumer spending in 2009," he wrote in a research note to investors, adding that he was maintaining his projections that the company would lose $2.65 per share in 2009 and $2.48 per share in 2010.

The Richmond, Va.-based company, which is in the midst of a comprehensive review as it works to operate as a stand-alone business while exploring strategic alternatives, has had only one profitable quarter in the past year. It posted a wider second-quarter loss last month with a 13.3 percent decline in same-store sales.

The results came after Circuit City replaced its chief executive and withdrew its outlook for the full year because of traffic declines, stronger competition and a weak brand.

In May, Goldman Sachs & Co. was hired to help the retailer explore strategic options amid a now-withdrawn $1 billion takeover bid from Blockbuster Inc.

The Journal reported that Circuit City hired Skadden, Arps, Slate, Meagher & Flom LLP as its bankruptcy counsel earlier this month, citing unidentified people familiar with the matter. The newspaper also said the company hired FTI Consulting Inc. to develop a turnaround plan and has retained investment bank Rothschild Inc. to lead discussions with banks and acquire emergency financing.

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On the Net:

http://www.circuitcity.com/

[Associated Press; By ASHLEY M. HEHER]

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