Z Gallerie's Second Chance a Good Sign for Furniture Chains?

(MoneyWatch)  Z Gallerie, a retailer of home furnishings and furniture, recently emerged from bankruptcy after shedding 21 stores and filing Chapter 11 six months ago. The retailer received a boost in the form of a $22 million financing package from Wells Fargo as part of its emergence.

It bodes well for the furniture sector, which is directly tied to the U.S. housing market, that an uncommonly successful bank like Wells is willing to bet on a 54-store outfit like the Gardena, Calif.-based Z Gallerie. And many regional furniture chains are actually expanding in this environment. But the uncertainty of the housing recovery could make such a measure a gamble, especially if lagging home sales continue to equate to consumers buying less furniture.

For its part, a Z Gallerie press release on the bankruptcy emergence says sales are currently "meeting projections." (Sales apparently peaked at $236 million in 2006 when it operated 74 locations and dropped significantly afterward.) Additionally, the company is also encouraged by the Z Gallerie Facebook page that counts in excess of 5,000 fans.
But a Daily Deal article says that Z Gallerie will face challenges going forward due to strife in the housing market. The article points out that when the market started heading south in 2007, Z Gallerie's net income came in at just over $56,000. Last year it posted a $4.7-million loss. The Deal contends that as we see more foreclosures, the future isn't so bright for the chain.

One can look at Ethan Allen Interiors, a company that runs about about 300 stores internationally, just over half of which are company owned with the rest independently operated. That retailer's third-quarter results included a whopping 35.3-percent sales decline at stores open at least a year and a loss of $13.6 million. And that's after the paring back last year of 12 stores.

So Wells' encouragement of Z Gallerie is a good small sign for the retail-furniture sector, but the housing picture likely needs to change before we see any large scale improvements.