Circuit City files for bankruptcy

NEW YORK – Circuit City Stores Inc., the nation’s second-biggest electronics retailer, filed for bankruptcy protection on Monday but plans to stay open for business as the busy holiday shopping season approaches.

It filed under Chapter 11 of the bankruptcy code, which will allow it to hold off creditors and continue operations while it develops a reorganization plan.

The Richmond, Va.-based company has been struggling as nervous consumers spend less and credit has become tighter, and the retail industry overall is facing what’s expected to be the weakest holiday season in decades.

Circuit City also said it would cut 700 more jobs, after announcing a week ago that it would close 20 percent of its stores and lay off thousands of workers.

“This isn’t a surprise,” JPMorgan analyst Christopher Horvers said, adding that the reorganization could help the company get out of leases for certain bad store locations.

Circuit City, which has had only one profitable quarter in the past year, has faced significant declines in traffic and heightened competition from rival Best Buy Co. and others. It said it decided to file for bankruptcy protection because it was facing pressure from vendors who threatened to withhold products during the holiday season.

“At the end of the day I think it’s really about an inventory position,” Horvers said. “If they can get inventory into the stores, I can think they’ll remain competitive.”

He added, “I think it’s encouraging that they were able to secure financing.” Circuit City said it had lined up $1.1 billion in loans to provide working capital while it is in bankruptcy protection. That replaces a $1.3 billion asset-backed loan it had been using.

The company said in its filing that it had $3.4 billion in assets and $2.32 billion in liabilities, as of Aug. 31.

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~ by spyaokid on November 11, 2008.

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