Houston retailer may file for bankruptcy

Source: Social Woodlands

Houston-based Mattress Firm may file for bankruptcy, according to this article in Reuters.

The company is seeking to get out of costly store leases and shut some of its 3,200 locations that are losing money. The company is working with AlixPartners, a restructuring firm.

Mattress Firm was publicly-traded until it was acquired by Steinhoff, a South African company for $3.8 billion in 2016. Back in December, the shares of the parent company plunged 80% as it disclosed accounting irregularities in its European operations.

According to the unaudited half-year results through March 2018 that were filed at the end of June,  the parent company wrote off nearly $13 billion in shareholders’ equity and admitted that €3 billion of cash reported the previous year either didn’t exist or shouldn’t have been consolidated.

Although Mattress Firm wasn’t part of this accounting shenanigans, the inflated purchase price that Steinhoff paid for the business added to the pressures. The same half-yearly results paint a grim picture for Mattress Firm. For the 6 months ended March 2018, the revenues of Mattress Firm were €1.26 billion (approx $1.5 billion), down 17% on the corresponding period. The EBITDA loss increased from €33 million to €94 million in the period to March 2018.

In early 2017 Mattress Firm had a spectacular and litigious fall out with Tempur Sealy, a supplier of many of the products in the stores, that clearly impacted revenues. This caused a €1.5 billion write-off of goodwill in 2017, one year after acquisition. Surprisingly, Steinhoff still carries €1 billion of goodwill on its books for Mattress Firm, despite the EBITDA losses.

Mattress Firm CEO  Ken Murphy, appointed in March 2016, stepped down in January, to be replaced by Steve Stagner, who was CEO between 2010 and 2016.

In November 2017 Mattress Firm sued two former real estate employees and a former broker with Colliers International claiming they defrauded the company of tens of millions of dollars by signing store leases at above-market prices. The defendants were responsible for the leases for about 1,500 of the new stores. The defendants have counter-sued, claiming Mr Stagner and Mr Murphy knew about the above-market rate deals.

Just before Mr Murphy resigned, in a bizarre move, he denied conspiracy theory allegations that surfaced on Reddit that Mattress Firm was a giant money laundering scheme! More revealing is this article that appeared in the lifestyle section of the Houston Chronicle in September 2016.

The aching loneliness of the Houston mattress salesman – Houston Chronicle

My December blog entry on the Steinhoff accounting irregularities

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