UPDATE: Losses, cash shortage led to RoomStore filing
December 13, 2011,
RICHMOND, Va. — RoomStore was facing mounting losses, sharply decreasing sales and a shortage of cash as it worked to pay down a bank loan before finally filing for Chapter 11 bankruptcy protection Monday.
In court documents, the Top 100 company, the last surviving business segment of the former Heilig-Meyers furniture store chain here, projected that sales for the fiscal year ending Feb. 29 will be about $190 million, down 27.4% from the previous year.
A profit or loss projection for the current year was not given. For the first half, RoomStore's net loss grew to $7.7 million from a loss of $2.5 million in the first half of 2010. Net losses for the previous three fiscal years totaled nearly $34 million.
The Richmond, Va.-based retailer, with 63 RoomStores and a majority stake in the 83-store Mattress Discounters chains, said it plans to reorganize around a smaller core of stores. It has secured a commitment from current lender Wells Fargo for a $14 million debtor-in-possession credit facility.
"The restructuring process will facilitate RoomStore's financial and operational plans, which are designed to restore the company to long-term financial health," the company said.
In its Chapter 11 petition, RoomStore said it has assets of $56 million and debts of $52.5 million. Thirteen furniture suppliers and service companies listed among its largest unsecured creditors have claims totaling about $3.8 million. The largest industry supplier listed is Haining Home Craft, owed $503,955.
In a Securities and Exchange Commission document, the company said the reorganization under Chapter 11 "is expected to result in the closing of a significant number of stores and reductions in staffing and overhead expenses."
In a court document, RoomStore said it attempted to sell its stake in Mattress Discounters to an outside investor, but the sale fell through and the retailer is now "reconsidering how to best utilize this asset."
RoomStore CEO Steve Giordano, who took the helm Nov. 14, said it was too early to say how many stores will close or where the closings would take place. He said the company has hired Julius M. Feinblum Real Estate to evaluate the leases and negotiate with landlords.
Ultimately, he said, "We're planning on having a bigger company, not a smaller company." What is likely, he said, is that RoomStore will still have a business in Texas and on the East Coast.
"We'll concentrate on our significant store base, where we have a dominant presence for our customers. That's where we can be the most profitable," Giordano said.
In a bankruptcy court declaration document by Chief Financial Officer Louis Brubaker, RoomStore pointed to the cooling of the housing market beginning in the second half of 2006, fierce competition and declining store traffic as contributing factors to its troubles.
This past summer, the company was repaying money it owed to Wells Fargo under its credit revolver, he said.
"Those payments depleted RoomStore's available cash, which in congruence with declining sales and other factors, has made it difficult for the debtor to continue paying its expenses going forward," Brubaker said.
Giordano, an industry veteran and most recently as CEO of Lombard, Ill.-based The RoomPlace, replaced former CEO Curtis Kimbrell after years of financial struggles for RoomStore and despite expansion moves that included the acquisition of the Mattress Discounters stake and, more recently, the leases of some former Lack's stores in Texas after that Top 100 company closed last year.
On the RoomStore board, Steve Gidumal of Virtus Capital has replaced Robert Shaffner, who resigned as chairman. The board now consists of Gidumal, Giordano and furniture industry veteran and former Levitz executive Ron Kaplan.
In the release, RoomStore said it will continue to operate its 63 stores while completing its restructuring, and retain its interest in Mattress Discounters.
Giordano said he was well aware of the plans to file and reorganize heading into the job, knowing RoomStore would go through the process "so we could get a better model and grow it from there."
He couldn't say how long the reorganization would take, only that it would be more than 60 days and likely less than a year.
"We're going to renew our focus on delivering value to the customer at the point of sale and the point of delivery. We will take steps to shorten our deliver lead times, including our supply chain," Giordano said.
Giordano said the customer wants "exceptional value and beautiful styling for each room in her home, and as a room store, we not only provide that for her, but save her money when she buys the room."
RoomStore said that vendor he has talked to so far have been "very supportive." He also said customer deposits are safe, thanks to the DIP facility.
According to the SEC filing, RoomStore operated 66 RoomStore locations at the end of its second quarter on Aug. 31 in Pennsylvania, Maryland, Virginia, North Carolina, South Carolina, Alabama, Florida and Texas and owns 65% of Mattress Discounters, with 83 bedding specialty stores in Delaware, Maryland, Virginia and Washington, D.C.
In October, former CEO Kimbrell said the company was in the process of closing full-line stores in Houston and Baltimore and clearance centers in Norfolk, Va., and Fayetteville, N.C. The retailer also had recently left the Birmingham, Ala., market, where it operated a store and warehouse.
In addition to Haining Home Craft, the retailer's largest unsecured creditors listed include manufacturers Klaussner Furniture Inds., owed $389,189; Sealy, $380,865; Haining Oyi May Sofa Co., $365,868; Magnussen Home, $330,012; Hangzhou Yi Bei Furniture, $295,193; Man Wah, $268,699; Franklin, $280,604; Easy Top, $185,462; Steve Silver Co., $168,212; and Hillcraft Furniture, $164,867.
Service providers on the top creditors list include U.S. Quality Furniture Services, owed $320,655, and Old Dominion Fright Lines, owed $232,815.
Check furnituretoday.com for updates.