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Egghead closing 77 stores

The software retailer says that its chief executive is resigning and that it will close half its stores.

Continuing to lose much of its business to computer superstores, Egghead Software (EGGS) said today that its chief executive is resigning and that it would close half its stores.

In addition to the departure of CEO Terry Strom, the company said two other top executives were leaving: Kurt Conklin, senior vice president of human resources, and Ron Smith, senior vice president of distribution.

All will stay on until the transition is completed. Strom, who will serve as a consultant, will be succeeded by George Orban, chairman of Egghead.

The company plans to immediately close 77 stores of its 156-unit chain. That will cut its market to 24 areas from 54.

The announcements were made at the same time Egghead released quarterly earnings, which brought only more bad news. Buffeted by declining sales for several years, Egghead reported a 7.5 percent drop in third-quarter revenue to $113.2 million over a year ago.

"In an effort to build upon actions already taken and an attempt to restore the company to profitability, the board has approved a substantial reorganization of Egghead's business," Orban said in a statement.

At stores that have been opened a year or more, sales fell 8 percent for the quarter.

Still, Egghead was able to able to post a $1.5 million profit, or 9 cents a share, for the quarter ending December 28. That compared with a net loss of $941,000, or 6 cents a share, a year ago.

Wall Street analysts had expected the company to report earnings of 4 cents a share.

"Our objective this coming fiscal year is to reduce our operating losses, improve our business processes and devote our resources to creating a foundation for renewed growth," Orban said. "The actions approved by the board amount to a remaking of Egghead in a way that we believe should give us the opportunity to turn the company around."

Costs for the reorganization will result in a one-time $30 million charge in the fourth quarter. But the company expects that it will yield lower headquarters and distribution expenses of $16 million on an annualized basis from its anticipated level of $35 million in fiscal 1997.

Analysts have said the company has lost market share as customers gravitate to the larger, super-store format such as Computer City and CompUSA.

Taking a cue from its competitors, Egghead has been upgrading and enlarging its stores. The company upgraded and relocated 11 stores to the 5,000-square-foot format generated a 20 percent increase in revenues and a 47 percent hike in profits, Orban said.

He added that the chain expects to add 15 larger-format stores by the end of fiscal 1998.