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Home Goods Retail Is Risky Business, S&P Says

The risk of home furnishings retailers defaulting on their loan obligations jumped 3 percentage points from mid-December through Jan. 12, according to S&P Global Market Intelligence.

The category bears the highest probability of default at 10.6 percent, outpacing the broader industry’s 4.7 percent as of Jan. 12, which marks an improvement from 5.2 percent on Dec. 14. During that December-to-January frame, home’s likelihood of failing to meet loan commitments inched up to 6.9 percent from 6.1 percent.

And while specialty stores’ default rate score rose to 5.3 percent from 4.8 percent, other fashion categories went in a healthier direction.

The rate shrank to 5.6 percent from 6.4 percent for apparel retail, and to 4.9 percent from 6.1 percent in  December for department stores. The margin for apparel, accessories and luxury goods improved to 2.0 percent from 2.4 percent, while footwear declined to 0.8 percent from 1.1 percent.

And despite the home furnishings category’s less-than-positive outlook, Mattress Firm filed paperwork earlier this month for its second go at the public markets. The company had been publicly listed, but was acquired by private equity firm Steinhoff International Holdings for $3.8 billion in 2016. But two years later, it closed 700 locations as part of a Chapter 11 bankruptcy it exited more than three years ago.

The retailer sells mattress brands such as Serta, Sealy, Purple, Tempur-Pedic, Stearns & Foster and Beautyrest. However, the company’s fiscal 2021 report suggests the business hasn’t turned a profit. Mattress Firm’s net revenues reached $4.4 billion, but a net loss ballooned to $165.1 million from $125.6 million in net income year before. As of Sept. 28, the highly leveraged company reported total liabilities of $3.5 billion in a September filing and net long-term debt of roughly $1.2 billion.

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At the other end of the spectrum, seven-year old Casper Sleep landed on S&P Global Market Intelligence’s September list of risky retailers before getting scooped up by a private-equity firm two months later, less than two years after its IPO. Although best known for its “bed-in-a-box” concept, the company lost its first-mover advantage as “wanna-be” competitors quickly copied the trend.

Once considered a so-called unicorn valued north of $1 billion, Casper’s IPO documents indicated significant losses, and the company had to trim its offering price to the $12-$13-per-share range from $17 to $19. It’s now trading in the $4.75 range. Durational Capital’s transaction taking Casper private is expected to close in the first quarter.

Separately, S&P counted 21 U.S. retail bankruptcies last year, with apparel and accessories firm Lorna Jane USA Inc. the last to file on Sept. 16. Three home furnishings firms filed for Chapter 11 last year, including Loves Furniture in January, SOS Furniture in June and ABC Carpet in September.

ABC Carpet, known for luxury rugs, bedding, pillows and linens, was acquired in November by a consortium of investors known as 888 Capital Partners LLC. Although under new ownership, ABC CEO Aaron Rose will continue to work with the company. The new owner is controlled by Regal Investments, and Paulette Cole, creative director and ABC’s fourth-generation owner in its pre-bankruptcy days, is part of the investment group holding a minority stake in the business.