As Valentine's Day draws nigh, furniture maker and Motley Fool Hidden Gems selection Stanley Furniture
The company also raised its operating margins by 140 basis points over fiscal 2003, to 11.1%. What's more, based on the company's projections for fiscal 2005 operating income, it's expecting to further tighten efficiencies and achieve about an 11.7% operating margin next year. Marry that to a 5%-8% increase in sales year on year, and the company predicts that net profits per diluted share of roughly $3.50 will fall to the bottom line by the end of 2005.
Yet for all this good news -- present and future -- Mr. Market would not be wooed. In yesterday's post-market hours, Stanley's share price actually dropped by a few fractions of a percent.
So what's not to like? Well, first of all, Stanley's share price had already increased several percent during the trading day, in anticipation of the good news to be released after the closing bell. As a result, much of the good news had already been priced into Stanley's shares. But the company's report also raised a few red flags that may have given investors pause.
For instance, accounts receivable increased 20%, and inventories 35% -- both significantly faster than revenues. The usual interpretation would be that a company is having trouble (a) collecting payment and (b) moving product. Whether that's true with Stanley is unclear, but both numbers bear watching over the next few quarters. Also worrisome was a decline in free cash flow, from $13.1 million in 2003 to $8.8 million in 2004. The difference there was likely attributable to the increase in inventories -- as we saw with fellow Hidden Gem Hooker Furniture
In other news, fellow furniture maker Ethan Allen
For more news and views on the furniture makers, pull up a chair and ponder the following:
- Hooker Furniture Getting Bloated?
- A La-Z-Boy Letdown
- Stanley Furniture Gets Comfortable
- La-Z-Boy's Hazy Ploy
- Stanley Furniture Gets Comfy
Fool contributor Rich Smith has no position in any of the companies mentioned in this article.