I admire Steelcase (NYSE:SCS) and other companies like it. They reaffirm my belief that the markets will reward companies that have legitimate, consistent, and realistic plans and then actually go out and execute them. For all of the sound and fury that comes along with "shorting is evil" stories like the one involving Overstock (NASDAQ:OSTK), the fact remains that professional shorts hunt only wounded or dying prey. If you execute your business plan and show improvement, the shorts go away.
Of course, that doesn't mean that Steelcase is setting any speed records with its turnaround. Revenue was up about 7.6% this quarter, with the benefits of acquisitions nearly canceling out the negative pressures of the adverse currency movement. With the margins, though, you see the benefits of positive operating leverage. Gross margins were flat, excluding charges, but the operating margin improved a fair bit, as operating income rose 24%.
As I've suspected since this past March, most of the easy "yes, Virginia, they really have turned the corner" money has already been made here. What that leaves, then, is a business in a tough sector. Makers of office furniture surely aren't experiencing the dire straits that many home furniture makers now find themselves in, but it's still a highly competitive sector.
I'm also not quite sure what to make of not selling through mass-market channels such as Office Depot (NYSE:ODP), OfficeMax (NYSE:OMX), and Staples (NASDAQ:SPLS). On one hand, selling to powerful retailers is risky -- they can squeeze your margins and run roughshod over your inventory management. On the other hand, big-box retailers have thrived on the reality that many customers do want one-stop-shopping, so perhaps Steelcase is losing out on some sales revenue.
In all, Steelcase is a mature company in a mature industry. That means investors would do well to pay an above-average level of attention to matters like returns on capital, margins, market share, and valuation. After all, this isn't really the sort of story where you can expect torrid growth to redeem an incautious "buy" decision.
For more related Foolishness:
Overstock is a former Motley Fool Rule Breakers recommendation. To see which winning stocks still make up the Rule Breakers portfolio, try out the newsletter service free for 30 days.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
