HOUSTON (AP) - Mattress Firm, Inc., the nation's largest mattress retailer, filed for bankruptcy protection on Friday, saying its rapid expansion of stores in recent years - with locations often very close to each other - resulted in "cannibalization" of sales.
The Houston-based company filed for Chapter 11 bankruptcy protection in federal court in Delaware, saying it plans to close up to 700 stores around the country as part of its reorganization plan to continue operating.
The company has more than 3,200 stores and more than 9,800 employees in the U.S. and in recent years had aggressively expanded its retail footprint.
In court documents, Mattress Firm said the company's previous management team had made several miscalculations as it rebranded more than 1,300 stores it had bought from competitors in the last two years.
"While these acquisitions allowed (Mattress Firm) to achieve ... presence in markets where they previously had little to no presence, they also led to 'cannibalization' of sales amongst stores in close proximity to each other," the company said. "As a result, many Mattress Firm stores are in direct competition with other Mattress Firm stores, resulting in disappointing sales."
According to court documents, Mattress Firm has more than $1 billion in liabilities and has more than 50,000 creditors. It owes its largest creditor, Atlanta-based mattress maker Simmons Manufacturing Co., nearly $65 million.
In a statement, CEO and president Steve Stagner says the bankruptcy filing will allow the company to "strengthen our balance sheet."
Stagner said the reorganization plan will let the company "provide greater value to our customers, open new stores in new markets and strategically expand in existing markets where we see the greatest opportunities to serve our customers."
The company, founded in 1986, has sales of more than $3 billion. But in court documents, the company said in fiscal year 2018, it is projected to lose about $150 million.
In 2016, Mattress Firm was acquired by South Africa-based retailer Steinhoff International Holdings for $3.8 billion.
Mattress Firm's parent company has been dealing with its own problems as its stock price has drastically tumbled after it reported accounting irregularities that are being investigated.
"The past few years have been tough for Mattress Firm. It had too many stores, faced competitive industry pressures and also had a corporate parent that was rocked by an accounting scandal," said Daniel Lowenthal a New York attorney with Patterson Belknap Webb & Tyler who specializes in bankruptcy law. "But now its goal is to get in and out of bankruptcy fast and regroup with new financing."
Mattress Firm said it hopes to complete its restructuring within two months.