Movie Gallery posted a wider loss for the second quarter ended July 1, and said on Friday that there is ‘substantial doubt’ as to whether it can continue as a going concern.
The company said in its Aug. 10 10-Q filing with the Securities & Exchange Commission said that it is not in compliance with the terms of its loans, and that if it does not reach an amended agreement with its lenders by Aug. 14 or obtain an extended forbearance period, its lenders could start foreclosure proceedings immediately.
The filing also discusses “significant vendor terms contraction” including discontinued credit with many suppliers, which has eroded the company’s working capital. Without access to additional capital, it said, Gallery does not have the resources to operate its business through the third quarter.
The No. 2 U.S. rental chain reported revenue of $561 million for the quarter, a drop of 6.7% from the same period a year earlier. It posted a net loss of $310 million, compared to a $25 million loss a year earlier.
Rental revenue‹which accounts for 82% of Gallery¹s overall revenue fell 12.2% in the quarter.
For the first half of the year, revenues fell 6.7% to $1.21 billion and Gallery¹s loss was $325 million. In first half 2006, it posted income of $25 million.
The longer-term solution the chain is pitching to lenders includes accelerating the closure of unprofitable stores, consolidating stores in certain markets, obtaining additional capital and realligning its cost structure.
Story courtesy of Video Business.