Furniture Brands: Some Reassembly Required

• Report this Comment On August 07, 2008, at 1:14 PM, hot1053 wrote:

  I have to disagree with your view of FBN's growth prospects. The company maintaining it's free cash flow quarter after quarter to be trading at 10 times free cash flow is probably not possible. I even doubt estimates of 10% annual growth as it appears that we are in a recession and that many other furniture companies are going out of business.

  When you look at a five year chart on the company, it's stock has been doing nothing but going down since the fall of 2004.

  FBN management made a very poor decision by not accepting a recent buyout offer. The dollar amount was not disclosed, however it was disclosed that the offer did carry a premium above the market price. From where the stock was trading when the offer was made, the buy out premium would have been close to or above it's 52 week high.

  Management should have done better due diligence to negotiate the offer, but unfortunately management only raised concerns and made excuses as to why the company would not entertain a buy out.

  With this earnings now at a loss the company most likely won't get a buy out price near it's 52 week high price. In fact I think the company will have to take more charges in the future and be forced to close more stores.

  The company may have better inventory controls on the surface, however you may have forgot to back out the 8 closed stores in November last year and the 3 closed manufacturing facilities in June this year. With those closings, it's easy to reduce inventory without having to do too much. The better inventory control may not be as good as it may look on the surface in the earnings report.

  The operating margin increases aren't amazing, they just shipped production to China, something that management should have done several years ago. Management made the right decision to finally move manufacturing to China, but it was forced to make this move to avoid larger quarterly losses.

  I personally see management as egotistical to not take a buy out offer this year near or above it's 52 week high. Management also is too slow to make changes to it's system to improve operating margins and to grow it's business.

  Shareholders need to demand that an outside firm needs to be hired to improve the company's margins and growth going forward as well as to explore the sale of the company.

  If this doesn't happen, I see the stock continuing to fall as management continues to not do a good job managing the company over the long term.

• Report this Comment On August 07, 2008, at 5:06 PM, TMFDitty wrote:

  Great feedback, Dave. Thanks for one of the most insightful comments I've seen in this box in some time.

  Rich

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