by Filing describes a host of issues that caused sales to decline and losses to mount dramatically over the past year
CHATSWORTH, Calif. — A combination of high inflation, soft furniture sales and limited liquidity led to the financial challenges faced by B2B e-commerce indoor and outdoor furniture resource Noble House Home Furnishings that culminated in its Chapter 11 bankruptcy filing this week.
That was a key message in a Sept. 12 declaration filed by company Chief Financial Officer Gayla Bella that likely resounds with those in the industry who’ve experienced a grueling first half.
Relatively strong Labor Day sales are expected to breathe some wind into the sails of those hoping for any glimpse of a comeback, particularly heading into the final months of the year and early 2024 as new product being launched this fall starts getting produced and shipped.
Still, this relief did not come quickly enough for Noble House, which said its sales declined from $671 million in 2021 to $491 million in 2022, a nearly 27% decrease. In the same document, it reported a net loss of $34 million in calendar year 2022, compared to net income of $7 million in 2021.
Formed in 1992, the company remains family-owned and employs 275 employees in a variety of areas including administration, operations, customer service, IT, marketing and sales, product development, warehouse/distribution, retail, accounting, human resources and deliveries, according to the declaration.
Having been in the e-commerce business for the past decade, it has a 100,000-square-foot corporate headquarters in Chatsworth, a corporate office in Houston and more than 2 million square feet of warehouse facilities, including operations in El Monte and Ontario, California, and Savannah, Georgia. These operations distribute to e-commerce channels that include Amazon, Wayfair, Overstock, Target and Home Depot, fulfilling direct-to-consumer orders around the country.
In addition to its e-commerce channels, it sells to big-box retailers such as T.J.Maxx, Home Goods, Marshalls, Ross Stores and others, although this only represents about 1% of revenues.
The declaration noted that while the company experienced rapid revenue growth during the Covid-19 pandemic, “supply issues, driven by freight and delivery times, drove up the cost of goods.” It added that as sales began to decline in 2022, higher inventory-related expenses along with infrastructure growth created challenges for the company.
“Despite the best efforts of the company and its advisers to cut costs and secure the capital necessary to preserve the business as a going concern, the company is unable to meet its financial obligations,” it noted, adding that it has worked with a secured lender “to develop an appropriate budget to facilitate an expedited sale that will maximize value and recoveries for stakeholders in these cases.”
As of the bankruptcy filing, the company’s primary long-term debt obligations totaled about $73.89 million plus interest, fees and other costs due to Wells Fargo. The company also estimates it has about $65.3 million of outstanding accounts payable that are owed to trade vendors, suppliers and other parties.
The petition said the Top 30 creditors with the largest unsecured claims alone are owed $45.29 million. Many of these are manufacturers in Asia, including China, Vietnam and Malaysia. It also sources product in India and manufactures poufs in California.
The company said that the challenges during the pandemic included significantly increased inventory costs and long lead times. And while demand rose due to the fact that customers were staying at home during the pandemic, the company’s sales began decreasing toward the end of 2021 relative to prior periods and since have continued to decline to 2018 levels.
Net revenue, it said, declined more than 26% from December 2021 to December 2022 and 27% year to date in July 2023 compared to the same period last year. Margins also were negatively impacted by higher freight costs through May 2023, the company noted.
“During 2023 in particular, the debtors’ liquidity and availability has worsened,” the document continued, adding that the company defaulted under its financial coverage ratios, and “availability was further constricted.” This in turn led to cost reductions including layoffs, tighter inventory management and also caused the company to vacate its Edgewater, New Jersey, facility in mid-May.
In February of this year, it hired Lincoln International as its investment banker to initially run a refinancing program for the company. Although it contacted 192 parties as of March — 92 of which signed nondisclosure agreements — the declaration said that no viable financing option resulted from that process.
By July, the company began considering a sale of the business and Lincoln contacted 60 potential buyers. So far, 23 of those interested parties have signed nondisclosure agreements and three have preliminarily submitted nonbinding indications of interest.
This week, GigaCloud Technology was identified as a stalking horse bidder, submitting a bid of $85 million for the company, plus $4.1 million for certain equipment and the assumption of certain liabilities. With a closing date of Oct. 31, there could be other competing bids, although there were none documented as of press time this week.
“Whether or not any overbids are received, the debtors’ sale process will enable their assets to achieve a value-maximizing transaction,” the declaration stated.
