Rattled home-goods sector ripe for buyouts

By Karen Jacobs - Analysis

ATLANTA (Reuters) - Expect to see more buyouts and bankruptcies in the U.S. home furnishings sector as a battered housing market forces weaker companies to close stores or sell assets in order to survive.

The fact that Pier 1 Imports Inc (PIR.N: Quote, Profile, Research, Stock Buzz), a home-decor retailer that only recently began recovering from nearly three years of losses, feels it can give a booster shot to smaller rival Cost Plus Inc (CPWM.O: Quote, Profile, Research, Stock Buzz) is seen as a sign of the times.

Pier 1 on Monday offered $88.4 million in stock to buy the operator of Cost Plus World Markets, touting success in turning around its own business and saying Cost Plus was likely to face liquidity problems without a merger.

Pier 1's bid is one of a few proposed deals in the home-goods sector as falling demand squeezes profits and hammers stock prices. Shareholders of Restoration Hardware Inc RSTO.O are due to vote on a buyout proposal from private equity firm Catterton Partners this week.

"We're still in an environment where retailers are over-expanding. I would expect that to continue to correct," said Morgan Keegan analyst Laura Champine, who follows furnishings and furniture companies. "This (Pier 1) announcement touches on the likelihood of that happening."

Companies that manage to pull off deals in such a tough environment stand to gain market share, reduce their competition and perhaps pick up prime retail space.

Consumers facing higher gasoline and food prices are avoiding big-ticket purchases, putting extra pressure on retailers. And since manufacturers face higher input costs for metals and the other materials that go into making home goods, there is little room to negotiate at the wholesale level.

Companies already hit include retailer Linens 'n Things, which filed for bankruptcy last month, and Bombay Co, which closed the last of its U.S. stores in January. Many furniture chains have closed their doors, too.