RICHMOND, Va. - Heilig-Meyers Co., said it filed for Chapter 11 bankruptcy protection from creditors, will close one-third of its stores and will fire about 4,400 employees. The moves were attributed mainly to financial difficulties arising from late payments from customers.
The largest U.S. furniture retailer said it will close 302 Heilig-Meyers stores in 28 states, leaving it with 569 Heilig-Meyers stores and 60 RoomStore and Homemakers stores. The firings will reduce its work force by 25 percent.
Another company is being hired to take over credit financing.
Heilig-Meyers caters to low- and middle-income consumers, largely in the Southeastern United States. As did competitor Levitz Furniture Inc., it had declining sales last year. Still, analysts and the company blamed its financial situation primarily on customers failing to pay their accounts on time.
"Recently it's been tougher and tougher for them to make money off of credit, to the point where we're not sure they were even making any money off of it," said Kenneth Gassman, an analyst at Davenport & Co. who has a "hold" rating on the company's shares. About 72 percent of Heilig-Meyers' sales were to customers who used its in-house credit program to pay for their furniture on installment plans, said spokesman Barry Brockwell. As more low- and middle-income families filed for bankruptcy in recent years, Heilig-Meyers was able to collect less of what it was owed and had difficulty borrowing money to finance its own needs, he said. Heilig-Meyers' stock price is now 50 cents, down 82 percent this year. The shares traded for $39 in December 1993.
Heilig-Meyers had about $1 billion in receivables in the first quarter, although just $138.5 million of that was in a trust for Heilig-Meyers, Brockwell said. Another $138.5 million is on Heilig-Meyers' balance sheet, and the rest is owned by investors who bought certificates in the trust.
The company had $1.35 billion in assets and $836 million in liabilities at the end of the first quarter. A company that files under Chapter 11 bankruptcy law is protected from creditors while reorganizing, rather than having to liquidate.
"The action we took today is critical to establishing a more realistic capital structure and a stronger competitive future for Heilig-Meyers," said President and Chief Executive Officer Donald S. Shaffer.
The company deferred an interest payment on public bonds due Aug. 1 and Aug. 15. Heilig-Meyers said it obtained $215 million in debtor-in-possession financing from a group of lenders led by Fleet Retail Finance Inc.