Franchise Group continues on aggressive furniture expansion track

Proposed buyer of FFO Home re-franchises 47 of its Buddy’s RTO stores in a $35M deal with apparel retailer Bebe, which has growth plans of its own

ORLANDO, Fla. — Franchise Group, which last week bid to acquire bankrupt FFO Home, has re-franchised 47 of its roughly 300 Buddy’s Home Furnishings rent-to-own stores to apparel retailer and licensor Bebe Stores for $35 million.

The company said it will use the proceeds from the deal to repay $35 million in debt and also expects its annual revenue to be reduced by the same amount. Under the deal, San Francisco-based Bebe, which closed all it’s apparel stores in 2017 to focus on its online business, has the right to open 20 additional Buddy’s franchise locations in certain markets in the Southeast.

The move brings a new player into the home furnishing industry while providing a fresh franchise partner for, and new insight into the business model of a company that has been in aggressive furniture industry expansion mode since the middle of last year. Short-term, Franchise Group will take a revenue hit with the Buddy’s franchising move, but longer-term, it’s further deleveraging its business and setting the stage for growth across multiple retail banners. For the full year, the company is eyeing about $2.1 billion in revenues, though a good portion of that is coming from non-furniture businesses.

Franchise Group, then known as Liberty Tax, acquired Buddy’s Home Furnishings in July 2019, as part of a series of transactions it described as the “first step in a strategic transformation” of its business model. According to a release at the time of Liberty’s Buddy’s acquisition, nearly 90% of the RTO chain’s locations already were operated by franchisees. (It’s unclear how many remain company-owned following the Bebe deal, and an executive with publicly-held Franchise Group did not return a call for comment.)

After the Buddy’s deal, Liberty Tax would go on to acquire The Vitamin Shoppe and then change its name to Franchise Group in September 2019 to reflect its new focus on franchises and “franchisable” businesses. Just a month later, it acquired the Sears Outlet business from Sears Hometown and Outlet Stores

In February of this year, Franchise Group completed an approximately $450 million acquisition of Top 100 company American Freight, funding the deal and restructuring the debt it had taken on with the Buddy’s and Sears Outlet transactions via a new $675 million credit facility.

A couple of weeks later, Franchise Group announced the rebranding of Sears Outlet and American Freight to American Freight Appliance, Furniture, Mattress, as it introduced new home furnishings categories to the Sears Outlet locations and expanded the American Freight banner to about 300 promotional stores from its previous 176 or so locations.

And then this past week Franchise Group signaled its intention to expand again when it announced plans to acquire another promotional-oriented Top 100 company, FFO Home, the Fort Smith, Ark. retailer that slashed its store count this year after the COVID-19 pandemic and supply chain disruption crippled its sales.

FFO Home filed for Chapter 11 bankruptcy protection this month, with Franchise Group as the stalking horse bidder for the remaining 31 FFO stores in Arkansas, Indiana, Kentucky, Missouri and Oklahoma. It’s also providing the debtor-in-possession financing, and if approved by the U.S. Bankruptcy Court judge in Wilmington, Del., it plans to rebrand FFO to American Freight, further expanding that brand.

The latest transaction with Bebe Stores, gives Franchise Group a new franchise partner to expand the Buddy’s business and is “a good example of how Franchise Group can use refranchising company-owned units to simultaneously de-lever its balance sheet and create growth for its brands,” said Franchise Group CEO Brian Kahn in a statement.

Bebe CEO Manny Mashouf said the Buddy’s stores it acquired “have a strong and consistent record of free cash flow generation across multiple market cycles” and “diversifies Bebe’s profit stream.”

Orlando, Fla.-based Franchise Group, posted its third quarter results Nov. 4. Net revenue for the period ended Sept. 26 totaled $551 million, and the net loss was $8.6 million, or 22 cents per share. Adjusted earnings totaled $50 million.

The company has more than 4,000 locations, primarily in the United States and Canada operating under the Buddy’s American Freight, Liberty Tax Service and The Vitamin Shoppe banners.

Buddy’s and American Freight were the only two profitable business segments during the quarter, according to the release, posting net income of $1.8 million and $1.1 million, respectively.

American Freight’s revenues for the period totaled $245.2 million and same-store sales were up 15%. Buddy’s posted $25.5 million in revenues and same-store sales increased 14.7%.

Kahn noted in the release the company continues “to generate a high level of discretionary cash flow,” which enabled it to reduce debt by $111.9 million in the quarter.

Franchise Group said it expects total revenues in the range of $2.10 billion to $2.15 billion for the full year.

Clint Engel

Clint Engel is a veteran home furnishings industry journalist and executive editor of Home News Now. Please share your feedback with him at

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