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RICHMOND, Va.-The other shoe dropped last week when Heilig-Meyers agreed to sell its Rhodes furniture retail chain to an investment group for about $110 million -- just three weeks after selling Mattress Discounters.

Heilig-Meyers said it would receive $60 million in cash, a $40 million note and an option to acquire a 10-percent equity stake in the new company formed to acquire Rhodes.

The sale of Rhodes, combined with the $218 million sale of Mattress Discounters on May 30, eases Heilig-Meyers' debt burden by more than 30 percent. Both divestitures are part of Heilig-Meyers' previously unveiled strategy to reduce debt and focus on its core operations.

Heilig-Meyers chairman and chief executive Bill DeRusha said the company would continue to review strategic options. In addition to the 812 Heilig-Meyers stores, the company also operates The RoomStore, a 70-store retail chain, and Berrios, a 32-unit chain in Puerto Rico.

"Other options would be to take a look at any other additional under-performing stores, taking a hard look at assets as they currently exist," DeRusha said. "Our mission is to enhance our shareholders' value. We'll take a look at what's left and see if there are any additional enhancements to be taken care of.

"This is an opportunity to reposition ourselves and concentrate on Heilig-Meyers and RoomStore, which are more closely allied in terms of their customer profiles," DeRusha said. "Berrios' performance is adequate today, and we're taking a look at the potential for that business, both from an expansion standpoint and the long-term return values to the company."

Heilig-Meyers acquired the 100-store Rhodes chain in December 1996, giving the company access to metropolitan markets in 15 Southern, Midwestern and Western states. In May 1998, Heilig-Meyers moved to reposition Rhodes to appeal to higher-end consumers.

The Rhodes format -- with more upscale product and a greater presence in major markets -- was seen by some as being at odds with the proven Heilig-Meyers formula of a credit-driven business operating in smaller, secondary markets.

"Rhodes was more of a drain on our resources than we anticipated," DeRusha said. "I think Rhodes will be a very successful company with its new management."

The investment group that has agreed to buy Rhodes includes institutional investors and some members of Rhodes management. Additional details were not available at press time.

Also last week, Heilig-Meyers posted stronger-than-expected operating results for the first quarter ended May 31. Total revenue for the quarter increased 3 percent to $689.2 million, compared with $668.9 million for the prior-year period. Net earnings prior to a $114 million pretax write-down of Rhodes assets were $9 million or 15 cents per share, compared with $10.2 million or 17 cents per share in the prior year. Including the Rhodes write-down, Heilig-Meyers reported a net loss of $70.5 million or $1.18 per share.

News of the transaction was welcomed by shareholders at the annual meeting in Richmond last week, DeRusha said. "Shareholders are very pleased with the direction and the performance so far, and there was encouragement to continue," he said.
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Author:Buchanan, Lee
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Geographic Code:1USA
Date:Jun 21, 1999
Next Article:NEWS BRIEFS.

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