The Furniture's Piling Up

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Maybe it's all the hours we spend sitting around on chairs here, or typing at our desks. But the Fool is definitely developing a bent toward investing in -- and recommending -- furniture manufacturers. After volunteering to write about Motley Fool Income Investor pick La-Z-Boy's (NYSE: LZB) earnings this week, I suddenly realized that we now have a total of three picks in the furniture industry: La-Z-Boy and Motley Fool Hidden Gems picks Hooker Furniture (Nasdaq: HOFT) and Stanley Furniture (Nasdaq: STLY).

In reviewing all three of these picks over the past few months, I've noticed something that I think bears looking into: inventories. They're rising quickly at all three companies. And at competitors such as Herman Miller (Nasdaq: MLHR) and Furniture Brands (NYSE: FBN), too. (Stagnant sellers Ethan Allen (NYSE: ETH) and Bombay (NYSE: BBA) are the exceptions.) Take a look at the chart below, which describes the relative dynamics of rising sales, inventory, and receivables in this industry.

For each entry, I'm comparing the most recent published figures, either for all of fiscal 2004 over fiscal 2003 if those have been published, or if not, then for the most recent reported quarterly numbers against their year-ago counterparts.

Company	Sales Growth	Inventory Growth	Receivables Growth
Bombay	-6.4%	-9.5%	5.8%
Ethan Allen	1.7%	-8.5%	-21.5%
Furniture Brands	0.3%	7.2%	2.3%
Herman Miller	11.5%	28.1%	1.1%
Hooker Furniture	11.9%	64.4%	9.0%
La-Z-Boy	5.3%	19.2%	-5.7%
Stanley Furniture	15.3%	34.8%	19.6%

Ordinarily, we'd expect serious sales problems to be reflected in stagnating sales growth, increasing inventories, and mounting receivables. That's not obviously the case with these furniture makers. It's only at Furniture Brands and Stanley that all three red flags are waving -- and even with those two, you'd need to watch the trend develop over several consecutive quarters before you could be certain that something is amiss. After all, much of the "inventory growth" likely stems from growth in the value of the raw materials used to manufacture furniture -- as opposed to growth in the volume of unsold furniture piled up in warehouses.

Nonetheless, several signs of trouble do seem to be popping up in this group. Five of the major furniture makers are seeing inventory growth outstripping sales growth by wide margins. Two of those five -- Furniture Brands and Stanley -- also have receivables growing faster than sales, and that suggests difficulty in getting customers to pay on time. At this point, I'm honestly not certain what it all means. The thing I am certain of, however, is that the growth in inventories is too widespread to be a coincidence, and we should keep an eye on it.

Have you noticed these same trends? Would you like to share a view? Drop by our message boards. Post a note or just pass through. Message boards are up and running for members of Income Investor and Hidden Gems on these picks:

• La-Z-Boy
• Hooker Furniture
• Stanley Furniture

Fool contributor Rich Smith has no position in any of the companies mentioned in this article.