Sagging Mattress Firm weighs on Steinhoff International
While Steinhoff has remained tight-lipped about the company, observers believe that Mattress Firm was struggling in the US.
Jordan Weir, a trader at Citadel, said the claims could be attributed to the company’s push towards online sales growth against physical sales.
“There is still huge demand for physical store locations that clients can walk into and test a product before purchasing it,” he said.
“Questions are being raised more around Mattress Firm’s recent acquisition spree that may have put the company in a position of holding too many similar mattress stores within close geographic proximity of each other.”
Steinhoff acquired Mattress Firm for $3.8billion in 2016. The company dominates the US market with a 33.6percent share.
However, an industry analyst says the group paid a premium for the acquisition.
Mattress Firm sales fell between 6 and 10percent in the last two reported quarters.
Operating losses widened 66percent to $133million in the six months to end June.
Weir said the company’s financial situation could impact on Steinhoff’s underlying share price. He said the company was currently faced with a choice between downsizing and creating more efficiency through closing redundant stores and bankruptcy.
“This is, however, looking at the situation more logically than from an underlying numbers perspective,” he said. “The possibility of bankruptcy can’t be ruled out entirely.”
Weir said Steinhoff International needed to improve its liquidity through the sale of real estate and discontinuation of lease payments.
“Simultaneously, the overall venture into the mattress industry could also be seen as a complete strategic failure, placing more unwanted pressure on the decision-making abilities of Steinhoff’s management and casting doubt over whether they are taking the underlying shareholder into consideration when material acquisition agreements are being made,” Weir said.
Ron Klipin, a senior analyst at Cratos Capital, said Mattress Firm had gone on a spree of opening a host of new stores after paying a major premium for the original acquisition.
He said the company had lost market share through underestimating the resolve of the suppliers over pricing disagreement.
“Steinhoff also went back to its roots which were started off as a bedding operation,” he said. “So in order to stem mounting losses and cash flow challenges, the better bet would be to go into bankruptcy.”
Klipin said the impact on Steinhoff’s balance sheet would depend on how much the group had already impaired Mattress Firm.