Capital Markets

Can Bombay Co. Go On? PwC Has Doubts

The auditor's doubts stem from the retailer's recent dip in operating performance and its expected loss for fiscal 2007.
Stephen Taub and Dave CookMay 7, 2007

The Bombay Co. disclosed that its independent auditor, PricewaterhouseCoopers, had expressed substantial doubt about the home retailer’s ability to continue as a going concern. The doubt stemmed from the company’s recent dip in operating performance and its expected loss for fiscal 2007.

In an April 20 filing with the Securities and Exchange Commission, the company had disclosed negative cash flows from operations of about $36.7 million compared with positive cash flows of $10.7 million a year earlier. Bombay attributed the downturn primarily to higher net losses and higher inventory levels.

The earlier filing also stated that as of February 3, outstanding borrowings against its line of credit totaled $39.3 million, and added that it was negotiating a new supplemental credit facility. At the time, Bombay warned that according to PwC, if the company could not secure a satisfactory supplemental credit facility and conclude on the adequacy of liquidity, the accounting firm would issue a going-concern opinion.

In its latest SEC filing, Bombay stated that in the second quarter of fiscal 2006, it undertook a program to reduce expenses, increase revenue, and improve liquidity. The company conceded, however that while it has been successful in reducing expenses, it has had difficulty reversing a trend of declining sales, due in part to “a very difficult business climate in the furniture and home accessories sector.”

As a result, Bombay added, it has hired the investment banking firm of William Blair to evaluate a “range of strategic alternatives,” including seeking a strategic partner or acquirer, seeking a financial partner to make a substantial equity investment, or some combination.

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