Mattress Firm could shutter up to a third of its stores should it pursue bankruptcy protection, analysts who follow the industry said Tuesday in dissecting the ongoing financial woes of the nation’s largest mattress retailer.

Speculation about the Houston-based company’s future comes on the heels of an anonymously sourced Reuters story that said the company is mulling a bankruptcy filing as a way to close hundreds of underperforming stores and return to financial stability. Mattress Firm is reportedly working with AlixPartners, a consultant that helps companies plan and execute turnaround strategies, including emerging from bankruptcy, the news service said.

Analysts and industry experts could not confirm but said that would not surprise them a bit. If Mattress Firm files for bankruptcy, the company might close anywhere from 600 to 1,200 stores, they said. The company has more than 3,400 stores nationwide, after closing about 200 in the past year.

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“Bankruptcy for Mattress Firm would make sense as it would allow them to reposition their real estate portfolio and close stores to become profitable,” said Peter Keith, principal of hard-goods retail for Minneapolis-based financial firm Piper Jaffray & Co.

Mattress Firm would likely wait until after Labor Day, the largest shopping event for mattresses, to file for bankruptcy, Keith said. Sales over the busy holiday would likely generate enough cash for the retailer to survive another month or so, and give the company a stronger footing to head into bankruptcy proceedings, he said.

A Mattress Firm spokeswoman declined to comment Tuesday. An AlixPartners spokesman declined to comment Monday evening.

Mattress Firm’s predicament comes as the company has expanded rapidly amid growing competition from online bed-in-a-box competitors and the loss of Tempur-Sealy as its largest mattress supplier. The $3.8 billion acquisition of the retailer by Steinhoff International, now embroiled in a financial accounting scandal, brought the extent of Mattress Firm’s financial problems to light.

“Mattress Firm has overstored the market substantially with their acquisition and expansion plans,” said Ed Wulfe, CEO and chairman of Houston-based retail brokerage Wulfe & Co. “There are just too many mattress stores.”

Bankruptcy seems inevitable, analysts said, as Mattress Firm burns through cash under the weight of operating thousands of stores and as it shifts its inventory from Tempur-Sealy to Serta-Simmons mattresses.

Steinhoff, in its most recent financial filing, reported Mattress Firm had losses of $109 million during the six months ending March 31. The South African conglomerate’s creditors agreed last month to a three-year timeline to restructure the company’s debt.

“Right now, they’re having to put up capital for inventory through the Labor Day holiday,” said Seth Basham, a Wedbush analyst who has followed Mattress Firm. “Their cash crunch will be at its peak over the next week. Bankruptcy could come more imminently.”

Basham said he has heard Mattress Firm has been shopped around for the past six months. Potential buyers include private-equity firms and mattress manufacturers looking to vertically integrate.

A potential Mattress Firm bankruptcy would have wide-reaching consequences for the industry and the Houston real estate market.

Mattress Firm has a third of the U.S. mattress market share, employs more than 10,000 workers and operates some 3,400 stores and 75 distribution centers nationwide, according to IBISWorld, a business research firm. The retailer had $3.2 billion in revenue last year, according to Furniture Today.

Mattress Firm has about 60 stores in the Houston area, averaging around 5,000 to 7,000 square feet, Wulfe said.

“It’s not a huge number compared to the Toys R Us closure,” Wulfe said. “By and large, Mattress Firm has great locations that can be absorbed in 18 months.”

Mattress Firm’s competitors would benefit from having fewer mattress stores to compete with. However, the loss of the mattress giant’s ubiquitous presence — whose advertising campaigns kept customers coming through all bedding stores — could hurt smaller retailers, analysts said.

“Competitors drafted off of Mattress Firm’s very heavy local advertising, which generated consumer interest in the mattress category,” Keith said. “A lot of competitors want a bruised Mattress Firm, but not a battered Mattress Firm.”

Jim “Mattress Mack” McIngvale of Gallery Furniture said he wasn’t concerned about a drop in foot traffic to his furniture and mattress stores.

“Our share of voice has been heavy and loud for three decades,” McIngvale said. “Mattress Firm’s advertising hasn’t really helped us. I think we’ve had more impact when they parted ways from Tempur-Pedic. People came to us to buy more Tempur-Pedic.”

Mattress Firm store closures could boost Tempur-Sealy’s earnings by as much as $50 million, an increase of 11 percent, according to Wedbush’s Basham. Tempur-Sealy, which severed ties with Mattress Firm earlier this year, produces high-end Tempur-Pedic mattresses.

Youval Meicler, the founder and owner of Texas Mattress Makers, said Mattress Firm’s marketing buzz around mattresses has helped his own business. Losing a big retailer could also have a negative ripple effect on mattress manufacturers, he said.

Neither McIngvale nor Meicler said they would take any joy in Mattress Firm’s financial struggles. Meicler even recalled that his company was one of Mattress Firm’s initial suppliers in the early 1980s, when the retail giant was much smaller.

paul.takahashi@chron.com

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