Haverty Furniture Companies (NYSE: HVT ) is a small-cap furniture company focused on improving its price point by providing value-added services. The strategy has paid off, as the stock is up 55% year-to-date (the stock was even up almost 6% on Friday). However, investors are missing two big trends in furniture: there is weakness in the middle-to-upper price point, and casegoods have underperformed. Because of this, I expect Haverty Furniture to underperform in the industry going forward. I would suggest that investors look at La-Z-Boy Incorporated (NYSE: LZB ) or Bassett Furniture Industries (NASDAQ: BSET ) for exposure to the furniture industry.
High Exposure to Case Goods
Haverty Furniture has over 40% of its sales coming from casegoods (which is above the industry average). Recently, we have seen commentary that suggests that casegoods is the weakest part of the furniture industry:
"Sales in the casegoods segment remain challenged" (Kurt Barrow-La-Z-Boy CEO in the latest earnings release).
"Well, interestingly, that as you all know case goods is always, it's been a challenge and we of course started a few years back as being very strong case goods company. That still has shown declines even though the decline has moderated." (M. Farooq Kathwari-CEO of Ethan Allen Interiors (NYSE: ETH) on the latest earnings call).
"As is typical for the industry currently, recent sales increases in our casegoods segment have not been as robust as in our upholstery segment, since upholstery is generally a lower ticket or a needs-based purchase." (Paul Toms-Hooker Furniture Corporation (NASDAQ: HOFT ) CEO on the latest earnings call).
This high exposure to casegoods could become a big negative for Haverty Furniture over the coming months, and is one of the reasons I believe it could be an underperformer. La-Z-Boy has only 10% of its revenue coming from the casegoods segment, while Hooker furniture has over 60% exposure to casegoods, and Ethan Allen has above average exposure.
Company's Price Point Creates a Risk
As noted in Paul Toms' comment above, upholstery is doing better because it is a lower ticket item. We have seen recent strength on the low-end and very high-end segments of the furniture market. However, the weakest results have come from the middle to upper-middle price points. Sadly, this is the area Haverty Furniture fits into. Though the company is trying to become upper-higher end (and to its credit it is doing a great job so far-I believe it will have success with this company-specific catalyst) right now its price point puts it in a position to underperform. This also places Ethan Allen in a position to underperform. La-Z-Boy has the lowest price point of the group, followed by Bassett Furniture, which should give both these companies an advantage.
Lack of Company-Specific Catalyst
Haverty Furniture also does not have a company-specific catalyst like La-Z-Boy and Bassett Furniture have. Both companies' retail businesses recently turned profitable (for Bassett Furniture it is the first time in the company's history!), which provides an inflection point for both stocks. This provides further support for the argument that Haverty Furniture could underperform going forward.
Considering Haverty Furniture's exposure to casegoods and higher price points, investors should look at better names like La-Z-Boy and Bassett Furniture. Investors should also stay away from Ethan Allen because of a combination of casegoods exposure and price point, as well as Hooker Furniture because it has the most exposure to casegoods.
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