Two Hollywood Video stores in the Inland Northwest are in the process of closing, due to the bankruptcy filing of parent company Movie Gallery Inc.
Meaghan Repko, spokeswoman for the nation’s second-largest video rental chain, said Wednesday other Hollywood Video stores in the greater Spokane-Coeur d’Alene area will remain open for now but could close later as management looks at the company’s overall financial picture.
Movie Gallery filed for bankruptcy on Tuesday and will downsize its stores. Amid the shuffle, the company will retain its current executives, a move that was criticized by at least one analyst.
The company sought Chapter 11 bankruptcy protection after months of struggling with debt from its purchase of rival Hollywood Entertainment Corp. for $1 billion in 2005.
Last month, the company, which operates 4,430 video stores across the United States, announced plans to close about 520 unprofitable locations. A company statement also said that parts of the business could be sold.
Movie Gallery is in the process of closing the Hollywood Video store at 9780 N. Newport Highway, Repko said during a phone interview from the company’s headquarters in Dothan, Ala. A store in Ponderay, Idaho, is also closing.
For now, seven stores throughout Spokane and Spokane Valley will remain open, she said, as will stores in Post Falls and Coeur d’Alene.
Although the company is downsizing, Movie Gallery said Chairman and Chief Executive Joe Malugen and other managers would remain, a move that one analyst called a mistake.
“I think that this management team has been in over their heads for a couple of years,” said Michael Pachter, of Wedbush Morgan Securities in Los Angeles.
Pachter said he expected Movie Gallery to close as many as 1,000 Hollywood Video stores, in addition to the stores it said it would close in September. He said the decision to file for bankruptcy was a “stopgap between running the business poorly” and selling parts of it.
Following Tuesday’s bankruptcy filing, Movie Gallery shares fell 7 cents to close at 21 cents a share. Shares had sold for as much as $5.29 in the last year.
Movie Gallery reported losing $14.9 million in the first quarter compared to a profit of $40.3 million during the same period last year. It filed for protection from creditors in federal bankruptcy court in Richmond, Va.
Movie Gallery denied it was going out of business.
“Movie Gallery needs to realign its cost structure due to the ongoing changes in our industry,” Malugen said in a statement.
The company said Sopris Capital Advisors LLC, a private investment group, would finance a reorganization of the company’s debt.
The plan, which requires court approval, would cancel outstanding shares in the company and give existing equity holders the chance to receive about 2 percent of the company’s new equity.
Movie Gallery also is seeking permission to receive $150 million from Goldman Sachs to finance operations during the bankruptcy proceedings. In a letter to vendors, the company said it had enough money to pay its bills during the reorganization.
The company said in August it could not make timely interest payments and would likely receive default notices from lenders. Standard & Poor’s Ratings Services cut the company’s corporate credit rating to junk-bond status in September.
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