Auditors Question Krause’s Viability

Krause’s Furniture Inc., battered by losses and trying to gain traction in its turnaround efforts, said Wednesday that its auditors have questioned its ability to continue operations as a going concern.

The statement by its independent accounting firm, Arthur Andersen, comes as the company also disclosed that it is closing 15 unprofitable stores and that its stock may be removed from the American Stock Exchange.

The Brea furniture maker and retailer, which had delayed filing its annual report with regulators to arrange financing, said it filed the report Tuesday without the opinion.

Krause’s said it filed an amended report late Wednesday with a qualified opinion from Andersen that questioned the company’s current viability.

“We’re in continuing discussions with Arthur Andersen on what would be required to remove that qualified opinion and are actively pursuing that possibility,” Krause’s chief executive, Philip M. Hawley, said.

The company said it is close to reaching agreements that would provide additional capital and certain waivers and consents from creditors that would improve the company’s financial condition. But it said that Andersen made no commitments to reissue its opinion after any agreements are reached.

Krause’s, meantime, said the American Stock Exchange may delist its sagging stock because of the company’s sizable losses--$48.3 million--over the last five years.

Despite closing 15 stores, the current climate is less than ideal for a comeback in the highly competitive furniture business, which is vulnerable to economic downturns.

Krause’s said its fourth-quarter and full-year results were adversely affected by an industry-wide slowdown that began almost a year ago and has persisted into the second quarter.

Trading in the company’s stock was halted Wednesday. The stock closed Tuesday at 40 cents a share.

The furniture industry has been struggling, as the sluggish economy prompted consumers to delay purchases, said David Perry, executive editor of Furniture/Today, a weekly trade publication.

“This year is shaping up as a difficult one for the industry,” he said.

On Tuesday, Heilig-Meyers Co. announced plans to close its 375 remaining stores. The struggling company, which was the nation’s largest furniture retailer just two years ago, filed for bankruptcy protection in August and has already closed 418 stores.

But Krause’s problems began long before the downturn. The company has not had a profitable year since 1994.

For the fourth quarter ended Dec. 24, Krause’s posted a loss of $4.4 million, or 19 cents a share, compared with a loss of $4.5 million, or 20 cents a share, for the fourth quarter the previous year, which was shortened by five weeks as the company shifted fiscal years.

The loss in the most recent fourth quarter includes a $2-million noncash charge, or 9 cents a share, related primarily to leasehold improvements at the 15 showrooms the company is closing. The store closures will result in an additional charge of about $3.1 million in the first quarter.

Sales totaled $40.4 million, compared to $22.1 million.

For the year, Krause’s reported that its net loss widened to $12.9 million, or 68 cents a share, from $9.4 million, or 43 cents a share, the prior year. Sales rose to $155.3 million from $130.3 million.

Krause’s, which employs about 1,000, said it plans to cut costs by about $4 million annually. The company did not provide specifics.

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Soft Sales

Krause’s Furniture has been in business for nearly three decades, but in recent years it has struggled as the robust economy and housing markets have boosted the fortunes of high-end furniture retailers. Quarterly sales, in millions:

2000 4th quarter: $40.4 million

Source: Bloomberg News