It's rough out there in the furniture industry. Erstwhile star performer Stanley Furniture (NASDAQ:STLY) -- still a Motley Fool Hidden Gems recommendation -- has posted five consecutive quarters of year-over-year declining earnings. It seems that nobody's been buying furniture to fill up all those vacant houses that Lennar (NYSE:LEN) and Centex (NYSE:CTX) seem unable to sell. (Go figure.) Could tomorrow's Q3 earnings news mark a turnaround in the trend?

What analysts say:

  • Buy, sell, or waffle? Analysts aren't counting on it. Of the three who still follow Stanley, only one rates it a buy. Two more are still holding.
  • Revenue. On average, they expect sales to slip 6.3% to $71.1 million.
  • Earnings. Profits are predicted to plummet 31% to $0.18 per share.

What management says:
Did I mention yet that it's rough out there? So rough, in fact, that Stanley is laying off 19% of its workforce over the next few months, shutting down production in Martinsville, Va. That plant's production will shift to Stanleytown, Va.

As we've come to expect from this kind of news, through long experience with Hooker (NASDAQ:HOFT) and Bassett (NASDAQ:BSET), La-Z-Boy (NYSE:LZB), and Furniture Brands (NYSE:FBN), the restructuring will yield charges to income. Stanley says the restructuring will cost it $0.39 per share over the course of Q4 2007 and Q1 2008. On the bright side, at least tomorrow's Q3 numbers should be safe from the charges.

What management does:
No surprise here: Management's doing its best in a rough market, but that still works out to declining margins at all levels -- and it's been going on for more than a year now.

Margins

4/06

7/06

9/06

12/06

3/07

6/07

Gross

24.2%

23.8%

22.8%

21.1%

19.6%

18.9%

Operating

11%

10.2%

9.2%

7.4%

5.7%

5%

Net

6.8%

6.4%

5.7%

5.5%

4.4%

2.3%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Last quarter at Motley Fool Hidden Gems, analyst Jim Gillies lamented Stanley's woeful insistence on promising numbers that it was subsequently unable to produce. Summing up the Q2 results, he said that Stanley "missed its own guidance for revenue and operating profit, lowered guidance for the upcoming third quarter and full year, turned operating cash flow negative, and flat-out said that it doesn't see any upside for the remainder of the year." Based on what management told us last week, I think I have to agree with Jim on this one.

The one bright spot for investors? As Jim pointed out, "Third Avenue Management now owns 16.6% of the company, and Royce & Associates owns 13.8%." Clearly, somebody sees something worth owning in this company. Maybe we should, too. Eventually.

2007 hasn't been kind to Stanley. Read all about it (if you dare) in: