House2Home to go away
November 12, 2001,
Irvine, CA — Just three months after it finished its conversion from a home improvement retailer to a home decorating venue, House2Home filed for Chapter 11 protection last week with the bankruptcy court in Santa Ana, CA.
Citing poor sales hurt by the weakened economy and the September terrorist attacks, the retailer had stopped receiving shipments several weeks ago. In addition, the New York Stock Exchange notified the chain last week that it suspended trading of House2Home's common stock.
With 42 stores averaging 100,000 square feet each, the retailer, formerly known as HomeBase, had completed converting its home improvement business this past August.
Zarkin said that at the time of the terrorist attacks in September, the retailer's borrowings against its credit facility was approaching peak level, with the completion of the conversion of the former HomeBase stores. Additionally, the majority of House2Home stores had only been open for a short while prior to the attacks, and they never had a chance to build a customer base that might have sustained the business through difficult periods, he said.
"The dramatic and sustained drop in sales that immediately followed the terrorist attacks put an extraordinary strain on cash flow, from which we could not recover," he added.
Zarkin said that the company has asked authorization from the bankruptcy court to liquidate its stores immediately, a process that will take about 13 weeks.
"Although this was a wrenching decision, our board of directors believes that, with no other viable strategic alternatives, a complete liquidation of operations is the only course of action available to us at this time."
He continued, "We would like to act quickly in order to take advantage of the holiday selling season and move toward a swift resolution."
In addition, the news prompted TJX Companies and BJ's Wholesale Club, both of which are partially liable for 41 of House2Home's leases, to take action. BJ's announced that it will record a pre-tax charge of up to $110 million for its House2Home contingent lease liability and related expenses. TJX said that it will provide a $40 million after-tax reserve for its potential contingent lease liabilities.
TJX spun off the former HomeBase business in 1989, and then HomeBase spun off BJ's in 1997. Under an agreement signed in 1997, BJ's and TJX agreed to share ongoing responsibility for certain House2Home leases that TJX had previously guaranteed.
"At this time, we do not know how the House2Home leases will be handled in the bankruptcy process or how many leases will result in claims against TJX," said Donald Campbell, executive vp and cfo of The TJX Companies. "The after-tax cost to TJX, if it were liable for all 41 of these leases, on a discounted present value basis, without reflecting any mitigating factors, would be $64.6 million after indemnification by BJ's ... As a result of these many mitigating factors, we believe our $40 million reserve places us in an appropriately conservative posture."
Jack Nugent, president and ceo, BJ's, said, "Because of BJ's strong balance sheet, we believe that the establishment of a reserve for our liability related to 41 House2Home leases will not have a material adverse effect on our ongoing business operations."