Knobias Clip Report (9-25-2007)

Sumbmited From Knobias ClipReport

MOVI: Announces Store Closings in Restructuring Effort

Tuesday’s session was dominated with talk of housing numbers being disparaging across the board. Sales of existing homes fell 4.3% to a seasonally adjusted 5.5M while inventories of unsold single family homes rose to an 18 year high. Prices in 15 of 20 major cities also dropped over the past year.

The glut of unsold homes has the market a bit uneasy as the overall spectrum of the supply and lack of demand is becoming clearer. Many attributed the numbers to the credit freeze in August caused many to sales to fall through. While true, year over year numbers still display a gross imbalance that could linger for some time.

In the small cap space, one Company is also experiencing somewhat of a glut and attempting to do a bit of cleaning to attempt to become profitable once again.

Movie Gallery Inc. (MOVI) which was the second largest North American video rental company under the brands Movie Gallery, Hollywood Video and Game Crazy, announced that the Company plans to close approximately 520 underperforming and unprofitable Movie Gallery and Hollywood Video stores.

The Company had previously announced that they has been accelerating their efforts to conserve cash and reduce the Company's cost structure to address the financial and industry challenges it had been experiencing.

Joe Malugen, Chairman, President and Chief Executive Officer of Movie Gallery, said in the press release, “Closing these stores was a difficult, but necessary decision to help protect the future of this Company. These stores are being closed after evaluating a number of factors, including store profits and the terms of the leases at each location. This action will allow us to focus our resources on the approximate 4,000 stores that have a stronger operating performance and prospects for future growth. We thank our many associates and partners who have remained loyal to us over the years,” continued Malugen in the release. “Where possible we will work with the customers at these locations to transfer their accounts to other nearby Movie Gallery and Hollywood Video locations. The talented associates and partners in the stores that will be closing have been notified. As always, we remain committed to treating all affected employees fairly and providing the necessary assistance to make this transition as smooth as possible.”

On August 28th, the Company announced an extension on forbearance agreements with their senior lenders. Lenders under its First Lien Credit Facility have executed a further extension of the forbearance agreement. Under the revised agreements, the senior lender group will forbear until September 30, 2007 from exercising rights and remedies arising from existing defaults, absent any new defaults under the senior credit facility or the Forbearance Agreement.

The question is what is the Company going to do with these locations? Some of them have to be owned and a liquidation of these assets would allow for the Company to pay the interest on the credit facilities that have had forbearance extensions until the end of September. The only problem is that liquidating assets that quickly will most likely cause the Company to accept lower than market value.

Following the announcement, shares gained some 15% to close at 59 cents. With another forbearance agreement or additional information about store closings and possible liquidation, shares could see a follow through while the name attempts to restructure and rebuild itself to profitability. Investors would be wise to watch.



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