NEW YORK — U.S Bankruptcy Court here has given the go-ahead for the sale of Levitz assets, but held out the option of eventually converting the case to the Chapter 7 liquidation.

The retailer’s unsecured creditors argue that Levitz is likely to liquidate in any case.

An attorney representing the unsecured creditors committee confirmed that the judge approved — with some adjustments — a sale plan that calls for bids to be submitted by Monday, Nov. 26, followed by an auction two days later.

But there’s a difference between approving the sale process and approving a sale, said Jay Indyke, attorney with Cooley Godward Kronish, representing the unsecured creditors committee. He said the judge “was very concerned” that the process would benefit only the secured lenders, to the detriment of unsecured creditors.

A hearing on the committee’s motion to convert the case to a Chapter 7 liquidation was set for Dec. 3.

“Essentially he’s saying let’s do the auction and see what happens,” Indyke said. “But he also sent out a warning that if it doesn’t go in a certain direction,” he might not approve the sale or could convert the case to a Chapter 7.

In a document filed last week, the committee said the fast-track bidding procedure Levitz proposes under its Chapter 11 filing would benefit only the retailer’s pre-petition lenders — General Electric Capital Corp., owed $42 million, and possibly YA Global Investments, or Yorkville, owed $22 million.

A Chapter 7 liquidation, the committee said, would keep certain assets clear for distribution to other creditors.

Indyke said the court could approve a sale and still convert to Chapter 7 if that step is deemed less expensive or more beneficial to creditors.

As of Tuesday, Levitz had not disclosed a stalking horse bidder, although it has indicated it hopes to have one. Indyke said he made the point during the hearing that he understood that there was no going-concern bidder, “and the debtor didn’t refute that.”

Levitz Chairman and CEO Larry Zigerelli has declined to comment.

In its objection filed with the court, the unsecured creditors committee criticized Levitz’s approach to a sale, saying it held out virtually no hope a buyer would emerge that could keep the retailer operating.

The group also said, “Succumbing to the pre-petition lenders’ demands, (Levitz) proposed a truncated sale process that will proceed at lightning speed, resulting in a liquidation of substantially all of the debtor’s assets less than three weeks from the petition date.”

The proposed bidding and auction plans “are not designed to achieve the maximum value for the debtor’s assets for anyone except GECC,” the committee said in its filing. Calling such a procedure a “travesty,” the group said, “There will likely be no distribution whatsoever to the general unsecured creditors in the bankruptcy proceeding, and this case may be poised for administrative insolvency.”

On the other hand, if the case is converted to a Chapter 7 liquidation, proceeds from lease sales and avoidance actions such as preference claims would remain unencumbered, and could benefit unsecured creditors such as suppliers, the creditors group said.

Preference claims involve payments creditors receive from the debtor, in this case Levitz, in the 90 days prior to a bankruptcy filing and that are recalled for the benefit of the debtor’s estate. In recent Chapter 11 cases, those payments have often gone to administrative claimholders — lawyers, accountants and landlords — instead of being redistributed to all unsecured creditors, as bankruptcy laws intend, said Steve Bouldin, a High Point attorney who has represented industry manufacturers in other bankruptcy cases.

He said it appears the committee, among other things, is trying to preserve the right to those proceeds for the unsecured creditors.

WOODBURY, N.Y. — Top 100 chain Jennifer Convertibles said sales and net income in its fourth quarter were ahead of last year’s final period despite a 2.9% decline in same-store sales.

The leather upholstery and sofa-sleeper specialist reported sales in the quarter ended Aug. 25 totaled $37.5 million, a 3.9% increase over last year’s fourth quarter. Net income came to $1.74 million, or 20 cents per share, a 10.7% jump over the comparable period last year.

“Despite the downturn in the industry, we have been able to maintain our profitability due to cost cutting, supply-chain management and adjusting our merchandising and advertising strategies,” said CEO Harley Greenfield.

In the fiscal year, revenues declined 2.2% to $136.6 million and net income slid 23.9% to $3.97 million, or 45 cents per share.

Full-year results included an operating loss of 8 cents to 9 cents per share from the company’s new Ashley Furniture HomeStore, which opened on Long Island, in Carle Place, N.Y., in June. Greenfield said many of the costs were one-time expenses, and he believes the store “will add significant revenues and profitability in fiscal 2008.”

DANBURY, Conn. — Aiming to place itself in the right locations for sales and profit growth, Ethan Allen and its independent dealers are busy closing, opening and consolidating stores.

About 24 stores — now called Design Centers, reflecting the network’s new focus on its design services — opened in the past fiscal year, including 14 in the United States. Another 16 are under construction or scheduled to be built in the current fiscal year, which started in July.

Despite the openings, the manufacturer and retailer’s store count has remained stable in recent years, since about as many are closing or consolidating as are opening.

Chairman and CEO Farooq Kathwari said that with the accent on design services, the new Ethan Allen is becoming more of a destination store and can serve a larger area.

“As an interior design company, we are not necessarily in the business of selling furniture as a commodity,” Kathwari said in an interview.

That means that unlike the grocery business, for instance, the company doesn’t have to rely on having storefronts on every busy corner. Today’s Ethan Allen consumer will drive 30 minutes or more to take advantage of what the store has to offer, he said.

Still, he concedes that some independent retailers are leaving the Ethan Allen fold because they don’t want to invest in new stores, or have “philosophical differences” with management.

One point of disagreement has been the company’s three-year-old everyday-low-price policy, posting actual prices rather than inflated manufacturer’s suggested retail prices, which allow for discounts. And some retailers are more comfortable selling furniture in the traditional furniture sense rather than promoting design.

Some leave the organization simply to retire, he said.

“The Ethan Allen dealer network is a very mature network. The average association (with retailers) we now have is about 35 years,” said Kathwari.

In the past two-and-a-half years, the makeup of the Ethan Allen network has shifted toward more company-owned stores and fewer independents. In early 2005, the company had 123 company-owned and 190 dealer-owned units, but today there are about 158 company stores and 144 independents. (The latter number excludes eight stores that recently closed or converted to a different format, or are in the process of closing.)

Sales from company-owned stores in the latest quarter ended Sept. 30 rose 10.1% from the same period last year to $182.8 million. The gain was entirely due to newly opened (including relocations) or acquired stores, as same-store sales declined slightly.

Kathwari said that about 180 stores, roughly 60% of the total, have been relocated in the past 15 years.

In some markets, stores have consolidated. He said a Virginia Beach, Va., independent dealer, for example, opened “a very well-placed design center” and closed two smaller stores, and now does more than double the business it did before. In Independence, Mo., a company-owned store was closed in order to consolidate its business into a new store in nearby Kansas City.

“You’re going to see more of those,” he said.

Another key element in Ethan Allen’s retail strategy is personnel. In addition to his CEO duties, Kathwari says he has taken on the role of chief recruiting officer for the past two-and-a-half years, personally working with management to review and approve key hirings. In that period, the stores have added 300 project managers and 1,400 designers.

The company also has invested heavily in its design consultant training program, which brings groups to the Danbury headquarters. In the last fiscal year, 700 graduated from the program.

“They get immersed in our culture. They understand our design. They understand the quality, credibility and the integrity of our organization,” said Kathwari.

About 200 veteran designers also have been visiting headquarters each month to promote the “buy in” to become a company based on providing design solutions. They leave better informed and more motivated, he said.

Ethan Allen is promoting the design message in its consumer advertising. It’s also rebuilding its Web site and hopes to launch the new version in the spring.