RoomStore reduces loss as sales rise 1.5%

Retailer's Mattress Discounters chain posts improved results

Clint Engel -- Furniture Today, August 17, 2010

RICHMOND, Va. — The RoomStore posted higher sales and reduced its net loss in its fiscal first quarter, thanks in part to continuing cost-cutting moves and an improved performance from its Mattress Discounters stores.

The Top 100 company, which last year filed a registration statement with the Securities and Exchange Commission to become a public corporation, reported a net loss for the period ended May 31 of about $2.6 million, compared with a $3.4 million loss for the same period a year ago.

Sales for the period increased 1.5% to $78.6 million.

Sales were $64.6 million in the RoomStore segment, down 0.5% from a year earlier. Mattress Discounters sales came to $14.05 million, up 11.5%. As of May 31 there were 67 RoomStores and 80 Mattress Discounters stores.

Richmond-based RoomStore is 65% owner of Mattress Discounters and reports all the sales for that chain in its results.

"The company's sales are still negatively affected by the continuing weakness in the national economy and a significantly weaker furniture retail industry, but new advertising initiatives are being implemented to help draw customers into the stores as the economy starts to improve," RoomStore said in an SEC filing.

The gross margin for the 67 stores in its RoomStore division was 42.7% for the quarter, a slight improvement over the 42.3% gross margin a year ago - the result of decreased costs for delivery due to the use of more outside contractors and a reduction in fuel costs.

Mattress Discounters' gross margin improved to 49% from 42.1% a year ago. Last year, the company was selling off floor samples and discontinued items after its acquisition of Mattress Discounters, to clear the product out for a new lineup.

Selling, general and administrative costs decreased to $36.8 million from $38.3 million a year earlier as the company cut salary expenses at its RoomStore division in "ongoing efforts to streamline operations and evaluate the infrastructure." In addition to outsourcing some delivery operations, the company said it consolidated back office operations and customer service departments.

Meanwhile, Mattress Discounters' costs were up as salaries and advertising increased mainly due to the opening of seven new stores in the past year, and advertising changes.

The company said increased competition and decreased consumer spending due to the recession have hurt its cash flow over the past few years.

"We do not foresee any significant increase in furniture retail sales in the near future, and the company expects liquidity to continue to be tight through the remainder of fiscal 2011," it said.

The retailer added that it is continuing to review operational expenses and as a result, has closed a few unprofitable stores, deferred some capital expenditures, changed the focus and amount of its advertising, reduced inventory and made other cuts and consolidation moves.