BHFC plans to liquidate
Soft sales, heavy debt lead to bankruptcy
By Clint Engel -- Furniture Today, August 2, 2004
Lancaster, Pa. — Top 100 company Breuners Home Furnishings Corp. filed for bankruptcy protection last week and plans to liquidate all 47 stores.
The parent of Breuners on the West Coast and Huffman Koos and Good's Furniture in the Northeast sought Chapter 11 bankruptcy protection in Delaware after failing to reach agreements with potential strategic buyers, said BHFC CEO Joe Reddington.
Court documents list 29 home furnishings companies among its top 33 unsecured creditors, with claims totaling $20.5 million. Furniture Brands International divisions Broyhill and Lane are the largest, owed a total of nearly $9.4 million.
BHFC estimated both its assets and liabilities at more than $100 million.
Reddington cited several factors in the bankruptcy move, including continuing soft business for higher-end retailers, BHFC's heavy debt load, and a defection in recent years by some key suppliers.
"This is another sad day for the furniture industry, which continues to lose retailers and market share of the U.S. consumer," he said. "It's an even more difficult day for the 1,287 full-time and 173 part-time associates who worked for some of the best retail brands in the industry."
Reddington said BHFC would hold going-out-of-business sales, selling off inventory and other assets through a liquidation specialist, then close all stores. Separately, a real estate specialist will be retained to dispose of BHFC leases. According to a court document, BHFC's board aims to secure debtor-in-possession financing through existing senior secured lenders.
Although Chapter 7 bankruptcy is typically associated with liquidation, Chapter 11 liquidation is fairly common, allowing the debtor's stakeholders to better plan and control the liquidation process for maximum return, Reddington and other industry leaders said.
Roughly half of BHFC's corporate staff in Lancaster has been let go and the rest, including Reddington, will leave "over a scheduled period of time," he said.
BHFC operates 10 Breuners stores in northern California; 17 Good's stores in Pennsylvania, Delaware and New Jersey; and 20 Huffman Koos units in New York, New Jersey and Connecticut. It is ranked No. 23 on Furniture/Today's latest Top 100 listing with estimated furniture, bedding and accessory sales of $323 million in its fiscal year ended Jan. 31.
It is the largest furniture store operator to seek bankruptcy protection since HomeLife Furniture — a former $680 million retailer — filed and subsequently went out of business in 2001.
Earlier this month, while rumors swirled about an impending bankruptcy filing, Reddington said BHFC was evaluating options, including talking to unnamed buyers. Last week, he said, "We had a couple of people doing due diligence, but at the end of the day, they declined. That sort of limited the options.
"The business has always been capital constrained," he continued. "This, and the defection of some of the better-know brand vendors, made it extremely difficult to cope with the business downturn."
Reddington wouldn't disclose the defectors, but it's widely known that BHFC has stopped carrying such key lines as Thomasville, Stanley and Bernhardt, except for the latter's Martha Stewart collections. Thomasville has been absent from its floors for a few years, when the manufacturer stepped up its dedicated-store push.
To protect employees and stakeholders, "we searched the industry for vertical investors, which we felt was the right business model, but to no avail," Reddington said. "When we were unable to get extended financing to restructure the business, filing was the only remaining alternative."
BHFC's majority owner is New York-based Apollo Management LP, which, through an affiliate, first took a stake in the emerging company in 1996. Anthony Civale, an Apollo official and BHFC board member, would not comment.
"This type of investment usually has a five- to seven-year life span," said Jerry Epperson, a managing partner of Mann, Armistead & Epperson in Richmond, Va. He said it's not unusual for an investment company involved as long as Apollo was in BHFC to get restless and "look at its options."
While Breuners, Huffman Koos and Good's are longtime industry names, BHFC actually got its start in May 1994 when Michael Solomon — still a shareholder, according to bankruptcy documents — and then Kidd Kamm & Co. acquired three-store Arnold's in San Diego from the Comrie family.
Solomon wanted to build a retail chain with annual sales of $200 million to $300 million. In December 1994, the investors acquired the struggling Breuners in northern California.
The following year, Kidd Kamm and Solomon changed the parent's name to Breuners Home Furnishings Corp. and acquired 13-store Huffman Koos of River Edge, N.J. That was followed in March 1996 by the purchase of Lancaster. Pa.-based Good's Furniture. Solomon then said the conglomerate hoped to be a $750 million to $1 billion upscale retailer in about three years.
BHFC went on to make some smaller acquisitions, including Connecticut's Wayside Furniture, eventually folded into Huffman Koos. It reached its peak in the Top 100 at No. 11 in 1997 and 1998, but posted its largest volume year in 2000, with furniture, bedding and accessory sales of $406.4 million at 53 stores.
The following year, it closed Arnold's, exiting Southern California.
"We took a business which lost $17.5 million in 1996 to record profitability of $25.1 million in (earnings before interest, taxes, depreciation and amortization) in fiscal year 2000," Reddington said.
But business deteriorated the next year following the Sept. 11 terrorist attacks. While Reddington has said sales are up this year, the high-end segment still "has not really recovered, and this has been exacerbated by deflation in the case goods side of the business," he said.
