Circuit City Stores Inc., the No. 2 U.S. consumer electronics chain, Monday said it would close 19 money-losing superstores and take a $35 million charge as it cuts costs to revive its struggling business.
The announcement pushed shares of the Richmond, Va.-based company up about 4 percent, close to two-month highs, on hopes the closures could help boost profitability.
The 19 stores, spread across 15 states, had combined revenue of $151 million in the 12 months ended Dec. 31, a company statement said. A Circuit City spokesman added that the closures would affect about 360 full-time jobs and some 500 part-time employees.
In the last three years, Circuit City, with a work force of nearly 40,000, has seen its business muzzled by larger rival Best Buy Co. Inc., whose push to locate many of its more than 600 outlets at premium sites such as just off highways is helping it garner more customers, analysts say.
Alan Rifkin, an analyst at Lehman Brothers, said the closures, which include a total departure in the Topeka and Omaha markets, was a welcome measure. “We are encouraged by management’s more judicious approach to improving profitability, though we believe more stores need to close,” he said.
He added in a research note, however, that he believes that 60 stores, or about 10 percent of the retailer’s store base, may need to close over time.
Circuit City, which until recently operated about 620 stores, said the 19 stores would permanently close Feb. 23. The outlets averaged around 32,000 square feet in size and according to the company, they had was no reasonable expectation that they could generate positive cash flow in the near term.
The store closures follow very little success in the company’s recent costly push to improve product display, lighting and signage in a third of its stores to boost sales.
In the most recent key selling month of December, Circuit City saw its sales at stores open at least a year drop 2 percent, while Best Buy posted a 9.3 percent jump in sales from stores open at least 14 months.
Circuit City also reiterated its expectation to open 65 to 70 superstores in the upcoming fiscal year, depending on real estate availability.
“We are still growing as a company. It’s not a question of getting smaller,” said Bill Cimino, a Circuit City spokesman.