The retail furniture industry is apparently having the stuffing beat out of it these days. Over the past year, furniture makers are generally trading lower than they were previously, beset by an apparent leak in the housing bubble, increased imports from China, and rising oil prices.
Just the other day, Motley Fool Hidden Gems recommendation Stanley Furniture (Nasdaq: STLY ) announced expectations that third-quarter sales will be below its prior estimates, actually declining by 8% to 10%, and that earnings will be in the range of $0.27 to $0.29, well below the $0.38 to $0.41 it previously indicated. Last month, La-Z-Boy (NYSE: LZB ) fell 7% below its estimates. And another Hidden Gems recommendation, Hooker Furniture (Nasdaq: HOFT ) , revealed in July that despite sales increasing 2%, it also had rising inventories that outstripped sales, an event that often precedes future sales issues.
The industry malaise is widening concern beyond just the furniture makers. Fabric suppliers, for example, are feeling the pinch as the furniture makers cut back. Culp (NYSE: CFI ) , which makes upholstery and bedding fabrics, is expecting second-quarter sales to be off 10% from last year.
At least one furniture stock that's beat the trend is Ethan Allen (NYSE: ETH ) . Though off from its highs of $45 a share, the fine home furnishings retailer's stock is about 12% above last year's level. Undoubtedly, that spurred its CEO to take advantage of the higher prices and cash in some stock options -- or rather, more than $17 million worth -- on top of his $1.5 million salary. Natuzzi (NYSE: NTZ ) is another that has not been caught napping, with 18% sales growth.
Healthy and growing free cash flow -- operating cash flows minus capital expenditures -- should point to the stronger companies in the industry. While the results tend to be somewhat lumpy, there are at least a few players showing improving numbers, which seems to bolster the contention of Fool Seth Jayson that fears of a complete sector meltdown are overblown.
Furniture Makers' Free Cash Flow
|
TTM |
2005 |
2004 |
2003 |
|
Bassett (Nasdaq: BSET ) |
(7.3) |
7.3 |
(12.6) |
19 |
| Ethan Allen |
82.4 |
73 |
102.5 |
73 |
| Hooker |
7 |
16 |
3.7 |
38.1 |
| La-Z-Boy |
35 |
61.8 |
11.2 |
101.3 |
| Natuzzi |
41.5 |
2.2 |
16.4 |
(9.1) |
| Stanley |
29.1 |
27.8 |
8.8 |
13.1 |
Since the ripple effect of cheap imports, high fuel costs, and a weakening housing market is likely to take its toll on stock prices, it helps to know which ones are likely to look a little threadbare after hard use.
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La-Z-Boy is a recommendation of Motley Fool Income Investor. Furniture makers Stanley and Hooker are both Motley Fool Hidden Gems selections. No matter your investing style, the Motley Fool has a newsletter for you.
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
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