News

Tweeter Home Entertainment Group, Inc filed for Chapter 11 bankruptcy protection on June 11. The move was not entirely unexpected, since the company had indicated in May that it might be forced to file if it could not access additional funding.

A disappointing Q4 2006 performance, exacerbated by flat-screen price wars during the Christmas season (a period when Tweeter's share price dropped 32%), damaged the company, which had begun reorganizing the previous year. In March the company announced 650 layoffs (starting with 70 executive positions) and closed 49 stores—stores that were seriously underperforming, inside sources report.

After filing for Chapter 11, the company also filed several "first day motions," including one that allows it to access a $60 million loan from General Electric Capital Corp., which will give it funds to continue normal business operations. This is especially vital, since the company is on a cash-only basis with many of its vendors. The bankruptcy court has permitted Tweeter to pay pre-petition claims of "critical vendors," if they agree to continue supplying goods and services.

The chain says it will keep all existing stores open during normal business hours, although some downsizing may be necessary to remain competitive. It will also honor its customer service policies including returns, exchanges, credits, and layaway programs, and will continue to pay employee wages and salaries. Benefits, including medical, dental, life insurance, disability, and vacation, will remain unchanged.

So, if everything is remaining the same, why should the result be different? Tweeter is betting on its new "CE playground" stores, which have been impressively profitable and popular. Filing Chapter 11 has also undoubtedly helped ease the pressure of long-term leases still lingering from its 49 store closings. And then there's the company's dramatic restructuring, including its increased emphasis on upscale audio. To many industry watchers, the company had made the right moves—what it needed most was time for them to start working. Chapter 11—and GE's $60 million—may give it that breathing space.