Bankruptcy triggers shakeup at Ultimate Electronics

DSN Retailing Today, Jan 24, 2005 by Doug Desjardins

THORNTON, COLO. -- Saddled with debt and declining sales, Ultimate Electronics filed for bankruptcy and named the founder of Hollywood Video as its new chairman. The 65-store consumer electronics chain filed for restructuring under Chapter 11 bankruptcy the same day Hollywood's Mark Wattles bought nearly half the retailer's common stock.

The filing was no surprise. Ultimate was $81 million in debt as of Oct. 31, 2004, and reported an 18% decline in December same-store sales. The high-end consumer electronics chain has been under pressure for years from small rivals and larger chains like Best Buy and Circuit City.

The chain's founder and ceo William Pearse resigned, as did the retailer's entire board of directors. In a statement, Ultimate president Dave Workman said the filing was "the best solution for Ultimate to remain a viable business going forward."

Ultimate secured up to $113 million in debtor-in-possession financing from Wells Fargo and will continue to operate its stores as usual, according to a statement. Wattles agreed to provide an additional $5.6 million. The chain operates 54 stores in 13 states in the West and Southwest and 11 stores under the SoundTrack banner in Colorado.

Wattles has been named to The chain operates 54 stores in 13 states in the West and Southwest and 11 Sound-Track stores in Colorado.

Wattles has been named to head the restructuring as he prepares to exit his role as chairman of Hollywood Video, which is expected to be acquired this month by rival Movie Gallery in an $850 million deal. Wattles notified the Securities and Exchange Commission on Jan. 11 that he purchased 6.85 million shares of Ultimate Electronics common stock for $4.4 million, giving him control of 54% of the retailer's outstanding shares.

He purchased a 9.8% interest in the company on Dec. 23 for $1.9 million, making him at the time the second-largest shareholder next to the Pearse family. At the time, Ultimate informed federal regulators that it would probably run out of financing for operations by the end of January.

Wattles has some experience in righting a struggling chain. He managed to keep Hollywood Video afloat in the late 1990s when it was teetering on the brink of bankruptcy and returned it to profitability. Retail analyst George Whalin said Wattles will have to make changes to keep Ultimate Electronics in business. "You can't be a large, high-end, high-service CE retailer these days because there are a lot of small regional chains that do it better," Whalin asserted. "They'll have to make major changes because their current model just won't work."