Struggling Select Comfort has rescheduled its credit line, and its shares are at 29 cents. An analyst has raised the Chapter 11 option.
Select Comfort, which was expected to report a fourth-quarter loss on Wednesday, disclosed late Monday that it is postponing release of the results and exploring "strategic and financing alternatives."
The Minneapolis-based manufacturer of premium-priced air beds also said that it had amended its credit agreement with a consortium of five banks, with J.P. Morgan serving as the lead financial institution.
The company's $90 million line of credit was scheduled to be reduced to $85 million on Sunday. But the company said in a regulatory filing that it entered into a new agreement Saturday in which the lender commitments would be reduced to $85 million on March 31 and $80 million on July 1.
Select Comfort spokeswoman Gabby Nelson said Monday: "At this point, we are not able to talk about the strategic alternatives."
Select Comfort makes adjustable-firmness mattresses with air-chamber technology. It has about 450 company-owned stores across the United States. The company has struggled as consumer spending has plummeted. Wedbush Morgan Securities, in a February report, noted that "non-innerspring mattresses lost market share during 2008, we surmise due to corresponding higher price points."
On Monday, Raymond James analyst Budd Bugatch said in a report that there is "financial stress mounting" at Select Comfort and he downgraded the stock to underperform.
"We believe a strategic buyer is unlikely, given most industry players are contending with their own business and financial issues," Bugatch wrote.
He also raised the possibility of a bankruptcy filing. Based on the current credit environment, he said, "any potential, prudent buyer would feel no urgency to act before a potential filing for reorganization."
Since December, Bugatch wrote, Select Comfort has had to secure four separate amendments to its credit agreements -- deferring a scheduled reduction of its credit line and waiving compliance with certain covenants.
"This suggests liquidity is strained and the banks have the company on a very short leash," he wrote.
In October, Select Comfort reported net sales for the third quarter of $157.2 million, a decline of 26 percent. Its quarterly net income fell from $11.9 million in the third quarter of 2007 to $1 million in 2008.
For the fourth quarter, analysts have been expecting a loss of 3 cents per share and a sales drop of 23 percent.
In mid-December, Select Comfort announced several cost-cutting initiatives, including a 22 percent reduction in its corporate workforce. At that time, management also said that it was "on track" to close about 20 stores during the first quarter of this year. Additional store closings were planned.
Select Comfort's share price has been particularly low since the U.S. economy hit an iceberg last fall. The stock dipped as low as 19 cents a share on Dec. 19. It had been trading in the $17 range as recently as September 2007. Shares closed Monday at 29 cents, up a penny. Monday's Select Comfort news was announced after the market closed.
Liz Fedor • 612-673-7709