RoomStore in Chapter 11
Virginia-based retailer to reorganize
Clint Engel -- Furniture Today, December 19, 2011
Giordano
RICHMOND, Va. - Room-Store was facing mounting losses, sharply decreasing sales and a shortage of cash as it worked to pay down a bank loan before filing for Chapter 11 bankruptcy protection Dec. 12.
The Richmond, Va.-based retailer, with 63 Room Stores and a majority stake in the 83-store Mattress Discounters chain, said it plans to reorganize around a smaller, geographically concentrated core of stores. It has secured a commitment from current lender Wells Fargo for a $14 million debtor-in-possession credit facility.
In court documents, the Top 100 company, the last main surviving business segment of the former Heilig-Meyers 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, Room Store'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 restructuring process will facilitate Room Store'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, Room Store listed 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.
In a Securities and Exchange Commission document, the company said the reorganization "is expected to result in the closing of a significant number of stores and reductions in staffing and overhead expenses."
Room Store CEO Steve Giordano, who took the helm Nov. 14, said it was too early to say how many stores will close or where they will be. He said the company has hired Julius M. Feinblum Real Estate to evaluate the leases and negotiate with landlords.
Ultimately, Giordano said. "We're planning on having a bigger company, not a smaller company." He said it's likely that Room Store will still operate in Texas and on the East Coast.
"We're going to funnel resources to those markets where we have a significant presence, and that density will provide a better return on investment for those resources," he said.
In a release, Room Store said it will continue to operate its 63 stores for now and will retain its interest in Mattress Discounters. In a court document, Room Store said it attempted to sell its stake in Mattress Discounters to an outside investor, but the sale fell through and the retailer is "reconsidering how to best utilize this asset."
In a declaration document by Room Store Chief Financial Officer Louis Brubaker, Room Store 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 summer, the company repaid much of the money it owed Wells Fargo under its credit revolver.
"Those payments depleted Room Store'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 in the document.
As of Dec. 1, the retailer had about $4.3 million outstanding on the $30 million revolving credit facility.
Giordano, who has more than 30 years of industry experience, was CEO of Lombard, Ill.-based The RoomPlace before joining Room Store five weeks ago. He replaced former CEO Curtis Kimbrell.
Room Store had struggled financially despite expansion moves that included the acquisition of the Mattress Discounters stake and, more recently, the leases of two former Lack's stores in San Antonio after that Top 100 company closed late last year.
Room Store's board also has been reorganized. New chairman Steve Gidumal of Virtus Capital replaced Robert Shaffner, who left the board. Others on the board are Giordano and Ron Kaplan, a furniture industry veteran and former Levitz executive.
Giordano said he was well aware of the plans to file and reorganize heading into the job, knowing RoomStore would go through this 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.
"I do believe it's about execution, and my program, wherever I've been, is about keeping score and working on fundamentals to ensure our customers feel the value at our point of sale, point of delivery and point after delivery," Giordano said.
He said the company also "will take steps to shorten our deliver lead times, including our supply chain."
Room Store will reach out to its vendors, he said, adding that those he had already talked to have been "very supportive." He also said that customer deposits are safe, thanks to the DIP facility.
According to the SEC filing, Room Store operated 66 Room-Store 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 liquidating 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.
Room Store posted a second-quarter net loss of $3.1 million, compared with a profit of $111,000 for the same period a year ago. Sales decreased 23.2% to $70.7 million from $92 million a year ago.
"Room Store is a viable and recognizable brand that is an established leader in the home furnishings industry," Giordano said in a release. "Our dedication to providing our customers with excellent value in home furnishings will provide a strong foundation as we grow and improve during restructuring."
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