For CarLotz, Inc. (Nasdaq: LOTZ), the “path to profitability” is paved with store closures and layoffs. The company announced on Tuesday that it is closing down 11 of its dealership stores and won’t be opening the three new locations with executed leases.
“We believe the closures should allow us to improve sourcing across a smaller hub base and focus on the productivity and efficiency of the remaining hubs,” said CEO Lev Peker. “We also believe this is the first step to building a stronger CarLotz, enhancing cash preservation, and creating a path to profitability.”
The firm said the closures are a result of “a strategic review of the business, with cash preservation and future profitable growth as key determining factors.” The move is expected to reduce the operating loss by approximately US12 to US$13 million on an annualized basis, assuming no additional revenue will be generated from subletting the closed locations.
But the closures would also mean letting go of around 25% to 30% of the company’s workforce.
“While decisions that impact our teammates are not taken lightly and are not easy, we believe the hub closures are a necessary step to help improve the Company’s financial performance,” Peker added.
The company expects the liquidated inventory from the closed locations would increase working capital by US$10 million. This is anticipated to be offset by severance packages of around US$0.5 – US$0.6 million, impairment of lease assets at US$2 – US$5 million, and impairment of other fixed assets at US$5 – US$6 million.
The closures started on Tuesday and are expected to be completed by July 8.
CarLotz last traded at US$0.49 on the Nasdaq.
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