Circuit City has hired Skadden, Arps, Slate, Meagher & Flom LLP, which oversaw Kmart’s Chapter 11 reorganization, as its bankruptcy counsel. The company also has retained FTI Consulting Inc. to develop a turnaround plan and investment bank Rothschild Inc. to guide talks with banks and secure emergency financing, the Journal reported.
“While we would appreciate [Circuit City] for its attempt to stay solvent, we remain highly pessimistic on holiday sales and on consumer spending in 2009,” said Standard & Poor’s analyst Michael Souers.
A filing from Circuit City would make it the largest retailer to enter bankruptcy protection in several years, the paper reported. Retailers that have filed for bankruptcy protection this year include Linens ‘n Things
, Mervyn’s and Sharper Image.
“We’re not going to speculate on rumors and comment beyond our original statement,” said Circuit City spokesman Jim Babb in a response to emailed questions.
The company’s management team, board of directors, and its strategic financial advisers are conducting a “comprehensive review” of all aspects of its business to determine the best methods of accelerating its turnaround and delivering substantially improved operating and financial performance, the company said in a written statement.
Shares of Circuit City fell 2.6% to 38 cents a share in afternoon trading, erasing earlier gains and wiping out 91% of their value this year.
The declining credit market has yielded the company little luck in securing debtor-in-possession financing, which helps a business in bankruptcy proceedings pay its day-to-day operating expenses, according to the Journal. By shutting the stores, 59-year-old Circuit City could liquidate about $350 million in inventory, which it could use to pay off certain real-estate costs and pressure existing landlords to renegotiate some leases, the paper added.
As of Aug. 31, Circuit City had 714 stores in the United States and 772 stores and dealer outlets in Canada, employing about 45,000 people. It had sales of $11.74 billion in the year ended Feb. 29.
In September, Circuit City withdrew its previous fiscal 2009 outlook and said that it was suspending future store openings beginning next fiscal year to review all aspects of the business ahead of the holiday season, its biggest selling period.
Faced with a slowing U.S. economy, a weakened brand position, along with stiff competition from rivals such as Best Buy Co. Circuit City has lost market share and customer traffic. Cash and short-term investments declined 78% to $92.5 million, while the company incurred short-term debt of $215 million.
The retailer’s liquidity position and how its financial performance may be affecting its vendors were repeated topics on management’s conference call with analysts in September.
Circuit City, which began to explore a sale of the company earlier this year, said in September that all options were still on the table. It also said that it may focus internally on improving its performance to keep operating independently.