Movie Gallery fails to meet credit facility
JULY 2 | UPDATE: Movie Gallery reported that, due to a softer-than-expected second quarter, it was unable to meet the terms of its credit facility for the quarter ended July 1.
The company is discussing with its lenders whether it will be able to remedy the defaults by seeking a waiver, amendment or forbearance.
Movie Gallery has rehired Bill Kosturos, a managing director at restructuring and corporate advisory firm Alvarez & Marsal, as chief restructuring officer. The firm was retained by Movie Gallery last year to assist with some financial concerns and will now serve in an expanded role to help the company look at strategic and restructuring alternatives.
Movie Gallery said it will consider divesting assets, recapitalization, alliance with strategic partners and a sale or merger. It also plans to accelerate store closings and realign its cost structure to better reflect its reduced size.
The company said it “plans to operate its business without interruption while it engages in discussions with its lenders and evaluates strategic and restructuring alternatives.”
To do so, Movie Gallery said it has fully drawn the remainder of its credit revolver and has $50 million cash on hand.
The announcement was released after the closing bell on Wall Street. Movie Gallery’s stock had closed at $1.89 but fell in after-hours trading to below $1.
Movie Gallery said it would meet with its lenders July 3 but hadn’t announced an outcome of those talks publicly by the end of the business day.
Movie Gallery said it would not comment on the situation beyond its July 2 announcement.
Michael Pachter, research analyst with Wedbush Morgan securities, said he thinks there’s a better than average chance that Movie Gallery could declare bankruptcy.
“I think it’s in the best interest of the senior secured credit holders to take control and compel a bankruptcy,” he said.
At the company’s current rate of earnings, Pachter believes it will be difficult for the company to pay off its debt, which he put at $1.3 billion. A bankruptcy would likely result in the company being sold off “in pieces,” he said.
Although possibilities still exist that would take Movie Gallery out of its slump, “the management team has taken too long” to produce results, Pachter said. He said the company’s downfall came from intensified competition from Blockbuster and Netflix.
Another analyst said he believed that although Movie Gallery's lenders may give the company a temporary reprieve on its credit facility, it probably won't be enough to avert a bankruptcy. He believes Movie Gallery met its downfall in acquiring Hollywood Entertainment, whose stores compete closely with Blockbuster, and not rising soon enough to the challenge of competing in online rentals.
Movie Gallery recently announced a plan to get into online rentals, but it was probably too late, the analyst said.
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| Submitted by: | Gina 10/9/2007 4:28:01 AM PT |
| Location: | Indiana |
| Occupation: | Store Manager |
This comment is for Ron, all I can say is this is business and you are taking it personally. If you had the opportunity to make more money and to expand I highly doubt that you would say no. This is not about the small business thats being picked on by big corporate. Walmart is the largest small business eater around and I'm sorry they are not going to feel sorry for anyone lets face it, its the bottom line dollar amount that they can make. And as far as the community service MG does plenty and then sum, from school clothes and supplies, to food drives for the needy, pet food drives for our shelters, car washes to rasies money for kids to take educational trips at school when parents can't afford to pay themselves, Christamas gifts, to delivering movies with snacks to the seniors cause they have been forgotton by others. Coats and gloves and hats for the winter for our children. What kind of community service would you like for us to provide and I'm sure I can get something in the works. Last Kathy I can only apologize for your poor customer service and as you can see like with Robert(operations manager) who only complains about what he doesn't like to do. so there for lets trash talk a quarter instead of taking care of our customer 100% every time. Lets get mad at policy and let our customers suffer and they go out the door empty handed and not very happy, so they can tell ten of their friends and ten of their friends and so on and so forth. I apologize kathy for a poor experience at one of our locations and If you ever get around Indiana way look us up and I show you some real customer service, weather it be at MG, HV, the local grocery store, the gas station, where ever customer service is the upmost important sales tactic there is. I believe in the customers and the williness to make a difference to make them happy and I'm for sure they will be more than happy to return quarter or not because they we're treated like they where the most important person in my store. Every one every time. What do you think Ron!
| Submitted by: | Gina (rgnyost@yaho.com) 10/9/2007 3:50:22 AM PT |
| Location: | Indiana |
| Occupation: | manager |
WoW I gotta say I''m shocked, Number one to Robert:"being only 300 million in debt and now we are 1 billion dollars in debt" intelligent comment. Movie Gallery wasn''t in any debt until HV came to us to acquire you. Mismanagement, improper training, errors with receiving and transfering of product, inside THEFT from every angle and managers not holding anyone accountable for there actions. And your discussing a quarter please, that''s far from whats caused this situation. I''ve walked into plenty of HV and the pushing any kind of sales was none existent let along any customer service. Damage wavier for a quarter, so what, if your company ask you to do this as part of your job then doesn''t that make it a requirement. Every retail store does suggestive selling. Your complaining about a stupid quarter and we do not force any one to take it, looks to me like if we had more people being team players and training there people right and having a positive attitude maybe none of us would be in this situation. And I gladly invite you to my store to see just how much concessions go out my doors! I will stay with this company to the end, MG has been good to me and I plan on returning the favor. Robert for an Operations Manager I''m not impressed, Managers are team players they follow policy and set the example for others. Complaining and having a bad attitude I''m for sure rubbed off on your employees which is also a contributing factor in the retail world. If I had to listen to someone complain all the time why should I be in a good mood! Managers set the tone for every one else! I guess we know where your tone is.
| Submitted by: | CSI: Movie Gallery (silent_rage@hotmail.com) 7/22/2007 7:41:14 PM PT |
| Location: | Rural, America |
| Occupation: | Manager |
Movie Gallery's biggest issue is management and investments. Movie Gallery was doing well and probably on its way to becoming a major player in the video rental industry until it's fatal purchase of Hollywood video. (no offense to anyone working for Hollywood). Movie Gallery was in the black; it had no debt and it had money to expand. I don't think spending 25 million dollars was a wise investment, especially when all it boiled downed to was Movie Gallery using Hollywood's style of rentals and some of their operation procedures. Upper management, from the regional managers up to the big wigs, and even the "head honcho" Malugen have had their heads, well you know where. There was no vision or aggressive diversification reviewed after the purchase of Hollywood. I guess they thought that the industry would remain the same and that their small town marketing antics would work for the metro-style Hollywood stores. After reading many other comments about Movie Gallery's ordeal, I think the consensus is bleak for Movie Gallery. I can sympathize with those who used to work for Movie Gallery/Hollywood. I feel for those who are still with the companies and understand their loyalty. I too work for Movie Gallery and I'm very concerned about the company as well. But being in lower management, you don't have any say in what the company does or what direction you would like to see the company go. I'm not going to seriously slam Movie Gallery or Hollywood, but I can say that mistakes have been made. That's a part of any business. Movie Gallery just made mistakes that crippled their company and all involved.
| Submitted by: | Six Years (ascarlettkiss@gmail.com) 7/11/2007 12:39:02 PM PT |
| Location: | Wilsonville, Oregon |
| Occupation: | Movies |
I don''''t believe that the people I work for are losers, in fact they have more honesty and integrity than most business people I have dealt with. I think you throw angry words at them out of fear. The company has bought up lots of mom''''s and pop''''s but funny thing is...they were being sold. So is it MG''''s fault they bought or the M&P;''''s fault they mismanaged their business into a hole where they had to sell? Ahh the allure of the almighty dollar. Example: If I found a DVD cheaper on ebay or Target than at your store, and bought it...am I the bad guy for getting a good deal? Nope, you should have been pricing more in line with what the competition was pricing at. Oh and as for the job offer, thanks but no thanks, you couldn''''t afford my salary since I am not a store clerk. Keep your eye on us, 5 years from now - we''''ll still be here. The question is - will YOU? Have good day - and don''''t forget to buy lots of Transformers when it comes out.
| Submitted by: | Robert 7/8/2007 8:59:42 AM PT |
| Location: | Sacramento, CA |
| Occupation: | Operations Manager |
After being in the front lines working for HV for 8 years, things were great until MG acquired us. Once that occurred, they made huge financial mistakes with layoffs and "restructuring". I remember when our debt at HV was $300 million, at that point we focused on the stores and the guests, and we got out of it. Now, MG has managed to bring a debt total to a tune of $1 billion. MG also has this rediculous policy for a damage waiver, just pay a quarter and you won''t be responsible for the replacement. Just raise the price if you want a stupid quarter, for several months, they were forcing us to get those quarters per disk. I kept explaining to them we needed to focus on concessions & online possibilities, but instead they wanted that stupid quarter. Let''s face it, you don''t need a damage waiver, its called guest service and if used properly you wouldn''t need that quarter. You can thank Joe Malugen, president of MG for not jumping onto online rentals. But lets face it, the real future will be in movie downloads. For the big box rentailers, the industry is changing and I am happy I got out when I did.
| Submitted by: | ron levasseur (taylorbroo@adelphia.net) 7/7/2007 5:57:26 PM PT |
| Location: | maine |
| Occupation: | self--18 years video store owner |
reply to six years.. sorry you will lose your job but you work for losers. think about it how many mom and pop store did they run out of business people are trying to make a living raise there families. and here comes the big guy cut the prices. you work for them well maybe i'm not sorry you will lose your job. all they do is take the money out of the city to the home office they don't care about help the kids in there town or city. bankruptcy is around the corner so good luck to you finding new job maybe one of those mom and pop stores will hire you...........
| Submitted by: | Six Years 7/7/2007 10:51:54 AM PT |
| Location: | Wilsonville Oregon |
| Occupation: | Movies |
In reply to Ron Levasseur's comment about being glad to see one of the big guys fall.. I work there and if I am out of a job, I won't be spending any money on anything let alone renting movies at your store or anyone's elses. Wishing ill on others is bad karma. Oh and MG/HV have been fabulous to work for, I have been with the company for 6 years. It's been an incredible ride and I only hope we make it. Oh yeah, the studios LOVE us because we absolutely have the best buying staff in the world. I kid you not. I'm proud to work here, and will stay to the end because I have faith in the integrity of our executives.
| Submitted by: | Jerry Briggs (jerry@psci.net) 7/7/2007 8:44:15 AM PT |
| Location: | Tell City, IN |
| Occupation: | Video Store Owner |
Movie Gallery slated the store in my town for down-sizing/closure at 3/31/07. At the last minute, about 3/20/07, they got the extended credit line and immediately decided to stay here, and bought, immediately, a downloading service, in a scramble to keep up with Blockbuster/Netflix/Wal Mart, etc. They didn''t think this through, and they spent, like an irresponsible couple with a tax-refund check, on things they wanted, instead of paying things they needed to take care of. Management will most certainly be replaced, with Joe G the first on the list, when the creditors put them into bankruptcy. Joe showed great leadership in building this chain, and it was profitable until he got away from their roots business plan: small towns, major player, avoid the metro areas....it worked well for 15 years. Pity.
| Submitted by: | Ron Levasseur (taylorbroo@adelphia.net) 7/7/2007 5:57:12 AM PT |
| Location: | Auburn Maine |
| Occupation: | self-video store owner 18 years |
it's about one of the big guys fall. see how they like it always coming in by a mom and pop store and closing them down from making a living. i hope they lose everything. a great day for the small people. one more giant to go. great job movie gallery.
| Submitted by: | kathy powell (katlg31@aol.com) 7/7/2007 12:21:42 AM PT |
| Location: | willis, texas |
| Occupation: | self employeed |
I am not suprised that they did not make it, because they have lost a lot of customers due to poor customer service, I have not rented at movie gallery in two years and i know a bunch of others that have not rented there for a long time due to poor customer service, but it's a little bit late to try to retrain their employees now. I only rent from Hastings now, they offer better deals for their customers.
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