It was just about 10 years ago that the series Picket Fences gave me my first-ever television staff writing job. The money I earned allowed me to go hog-wild and purchase real adult furniture for the first time in my life.
After tromping through every furniture store in Los Angeles, I kept returning to the one store that repeatedly seemed to have the furnishings that fit my taste at a price I could afford. That store was Ethan Allen
Ethan Allen makes great stuff. Not to take anything away from competitors like Hooker Furniture
Kathwari is still at the helm, but something must have happened over at Ethan Allen. You'd think that in the midst of this insane housing boom, the stock would have shot to the moon over the past five years. Unfortunately, recent quarterly earnings showed a decrease of about 5% in sales, 6% in comps, and 22% in both net and operating income. Over the past three years, the company has changed 70% of its product line and added 40 stores. It has also recently started buying back stock -- $60 million worth in the past nine months.
The CEO clearly has a strategy, but for whatever reason, it isn't being reflected in either sales or the stock price. It's too bad, really. The company still makes excellent products. But investors should note that sometimes, no matter how terrific a product is, retail will be retail --and that means a business is at the mercy of its customer's fickle tastes.
So, is Ethan Allen a value buy? Arguments are flying from both directions. The stock has taken a 30% hit over the past year, and that may fully discount the problems I've pointed out, including an expected earnings decrease this year. However, the more adventurous among you will note that Ethan Allen trades at a P/E of 14 vs. an analyst-projected 12% annual earnings growth rate over the next five years.
Build on this article by checking out:
- Why inventories are rising at furniture makers.
- How Bombay is heading south.
- And why Herman Miller is sitting pretty.
Fool contributor Lawrence Meyers always checks out Ethan Allen before any other furniture store, but he owns none of the stocks mentioned.