House of Fabrics Will Close 86 More Stores

House of Fabrics Inc., trying to weave a plan for survival after more than a year in bankruptcy reorganization, said it will close 86 of its remaining 361 retail fabric stores and shutter its distribution center in South Carolina.

The closures will result in the loss of 1,065 to 1,365 of House of Fabrics’ 8,000 jobs and position the Sherman Oaks-based retailer to emerge from Chapter 11 proceedings at less than half its former size, with nearly half its remaining stores in California. The company said the cash raised through the site closings and inventory liquidation will be used to pare debt owed to a bank group led by Bank of America.

The 50-year-old chain, a fixture in California retailing, has struggled during the last few years because of intense industry competition, a sluggish retail environment and an ill-timed expansion. House of Fabrics operated 624 stores before it filed for Chapter 11 bankruptcy protection in November 1994.

The latest round of cutbacks by the company, which has stores in 34 states, signals a retrenchment to its Western roots. Seventy-two of the stores being closed are outside the state.

The 14 California stores to be eliminated include outlets in Garden Grove, Camarillo, Corona, Palmdale and Rancho Cucamonga. Of the 275 remaining House of Fabrics stores, 115 are in California. Of those, 67 are in Southern California.

House of Fabrics is “falling back to a California-based chain,” said analyst James Schmitt at Westcountry Financial in Somis. “They’re just trying to be in the survival mode.”

Company spokeswoman Sandra Sternberg said the cutbacks could pave the way for House of Fabrics to emerge from Chapter 11 bankruptcy proceedings sometime in its fiscal first quarter ending April 30.

“The decision to close these stores and the distribution center is an extremely difficult one,” House of Fabrics Chief Executive Gary Larkins said in a statement. “Nevertheless, these actions are important steps that we believe will allow the company to successfully emerge from Chapter 11, firmly positioned to compete profitably and grow in the future.”

The company said it will begin liquidating inventory next week. The Mauldin, S.C., distribution facility will begin reducing operations in early March and close near the end of April, after which the building will be sold.

House of Fabrics said it received court permission for the closures.

Larkins said the company’s strategy of eliminating unprofitable stores and changing its product mix has so far improved its financial condition.

In its fiscal third quarter ended Oct. 31, House of Fabrics narrowed its loss to $5.52 million from $73.2 million a year earlier. Although there were fewer stores, its sales edged up to $92.3 million from $90.6 million a year before.

The company has said it signed a tentative agreement with its bank group for a three-month extension, through April 30, of its $17.3-million debtor-in-possession financing facility.

House of Fabrics had considered being acquired by another large fabrics chain. But talks with Tupelo, Miss.-based Hancock Fabrics Inc. ended last month after House of Fabrics rejected Hancock’s proposed purchase price.

Analysts said an acquisition by Hancock would have made sense for House of Fabrics because the retail fabric business is crowded.

But House of Fabrics spokeswoman Sternberg said the announced cutbacks “indicate the company is very much focused on a stand-alone plan.”

Michael Angel, an attorney for the committee that represents House of Fabrics’ shareholders, said it’s unclear whether the cutbacks will make the company viable in the long run.

“Frankly, they don’t have a heck of a lot of options at this point in time. This is probably a better alternative than just an outright liquidation,” he said.

House of Fabrics’ stock closed unchanged Monday at 43.75 cents a share in New York Stock Exchange trading.