RICHMOND, Va., Feb. 8 /PRNewswire-FirstCall/ -- Circuit City Stores,
Inc. today announced a series of changes to better align the company to
meet the changing nature of the consumer electronics retail marketplace as
well as improve financial performance.
"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, Inc. "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."
The company expects to incur pretax expenses of approximately $30
million related to store and other facility closings, both domestic and
international; $40 million to $60 million related to goodwill impairment;
and approximately $15 million related to other restructuring activities. Of
the total range of $85 million to $105 million, substantially all of the
expenses will be incurred in the fourth quarter of fiscal 2007. As the
company continues to move forward on its initiatives, additional expenses
could be incurred in the fourth quarter.
Executive Management Changes
The company has 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," said
Schoonover. "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.
"We thank Doug for his efforts in the initial phase of our
merchandising transformation and innovation efforts and wish him great
success in his future endeavors," said Schoonover.
Business Changes
Domestic Segment
By the end of February, the company expects 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. Separately, in February, the company
will close one Superstore in advance of opening a replacement store in the
first quarter of fiscal 2008.
The company plans to close the domestic segment operation that was
being held for sale. The results from this operation previously had been
reported as results from discontinued operations.
The company also plans to close a distribution center located in
Louisville, Kentucky, that is used primarily for store fixtures and
signage. A separate distribution facility located in Louisville that is
primarily used to distribute entertainment software is not impacted by this
closure.
International Segment
The international segment plans to close approximately 62
under-performing company-owned stores. This action, coupled with the
previously announced return of the 92 Rogers Plus(R) stores to Rogers
Wireless Inc., will allow the segment to eliminate one region and four
districts, resulting in a reduction of approximately 70 positions at the
store support center and in field management. Related costs will be
incurred largely in this fiscal year's fourth quarter with some impact
likely in next year's first quarter.
The international segment also expects to incur costs related to plans
to exit product lines and other actions around inventory to align its
merchandise assortment with consumer demand.
The company has been monitoring sales and margin trends in the fourth
quarter and determined that it is necessary to evaluate goodwill associated
with the international segment for impairment. While the valuation process
is not complete, it is expected that the related non-cash charge in the
fourth quarter will total $40 million to $60 million.
About Circuit City Stores, Inc.
Circuit City Stores, Inc. (NYSE: CC) is a leading specialty retailer of
consumer electronics and related services. The domestic segment operates
through 643 Superstores and 12 other locations in 158 U.S. markets. The
international segment operates through more than 800 retail stores and
dealer outlets in Canada. Circuit City also operates Web sites at
http://www.circuitcity.com, http://www.thesource.ca and http://www.firedog.com.
Forward-Looking Statements
Statements made in this release, other than those concerning historical
financial information, may be considered forward-looking statements, which
are subject to risks and uncertainties, including without limitation: (1)
the company's ability to control costs and leverage expenses as a
percentage of sales, (2) the degree to which the company is able to offset
pressures on gross margin with sourcing improvements, pricing optimization,
vendor programs and inventory initiatives, (3) the level of investment
spending related to the Company's strategic initiatives and information
technology, (4) the effectiveness of changes to the management and
organization structure, (5) the amount of the fair value associated with
the international segment operation, as determined in the impairment
analysis, (6) the impact on associate morale and engagement as a result of
the changes, (7) the company's ability to drive process and sales
improvements, (8) the effect of pricing and promotional activities of the
company's competitors and the company's response to those actions, (9) the
pace of commoditization of digital products, (10) the possibility of
adverse changes in general economic conditions, (11) the company's ability
to generate sales and margin growth through expanded service offerings,
(12) the international segment's ability to rationalize its merchandise
assortment and (13) the company's ability to continue to generate strong
sales growth in key product categories and through its direct sales
channel. Discussion of additional factors that could cause actual results
to differ materially from management's projections, forecasts, estimates
and expectations is set forth under Management's Discussion and Analysis of
Results of Operations and Financial Condition in the Circuit City Stores,
Inc. Annual Report on Form 10-K for the fiscal year ended February 28,
2006, in the Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2006, and in the company's other SEC filings. A copy of the
annual report is available on the company's Web site at
http://investor.circuitcity.com.
(LOGO: http://www.newscom.com/cgi-bin/prnh/20010709/CCLOGO )
SOURCE Circuit City Stores, Inc.
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Related links:
http://www.circuitcity.com
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CONTACT:
Bill Cimino, Director of Corporate
Communications, +1-804-418-8163, Investor Relations, Corey
Benjamin, +1-804-527-4033, or Jessica Clarke, +1-804-527-4038;
each of Circuit City Stores, Inc.
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