It's the same old story for Motley Fool Hidden Gems selection Hooker Furniture (NASDAQ:HOFT) this quarter: inventory. Our handy Fool by Numbers report from earlier this morning lays out the gory details. Inventory was up 41.2%, while sales were down 3.1%.
Were this a one-quarter blip, it wouldn't be a big deal. But inventory has been a bugaboo for the furniture industry in general for the past year, and Hooker Furniture hasn't been an exception.
Domestically produced wood furniture is Hooker's other big problem. Sales were off 23% versus last year. I don't believe that the continuing inventory problem and this area's sales fall-off are unrelated. You can probably connect China and imported furniture to the situation as well. And it's worth noting that the portion of Hooker's business that sells imported wood furniture fared much better, with a sales increase of 2.2% versus last year.
The inventory bulges are a correctable problem for Hooker Furniture and not a threat to the life of the business. And furniture makers such as fellow Motley Fool Hidden Gems pick Stanley Furniture (NASDAQ:STLY), La-Z-Boy (NYSE:LZB), and Ethan Allen (NYSE:ETH) have all had their struggles of late as well.
However, the furniture business tends to produce strong free cash flow, and the valuations at the moment are fairly attractive -- though they are above their historic lows, as fellow Fool Stephen Simpson pointed out recently. In this regard, Hooker Furniture is no exception. The company churned out 45.5% more free cash flow in its second quarter this year than it did last year, and that's with a larger amount of cash being invested in the business.
Hooker is also taking steps to streamline its supply chain, which hopefully will lead not only to lower inventory levels but also improved delivery performance. The other plus is that the strong free cash flow is allowing the company to work down its debt in short order. On the whole, I like the company as a long-term investment. Should prices dip back toward the lows of a couple months ago, I think the shares would offer a very attractive opportunity to investors who can afford to be patient. Hooker and the other furniture makers need some time to adjust to the furniture market's changing and increasingly global nature.
For related Foolishness check out:
- Fool by Numbers: Hooker Furniture Q2 2005
- Bassett Is No Dog
- Hooker Loses Respect on Street
- Ethan Allen Takes a Seat
Want to make your portfolio even cushier? Have a seat with our Motley Fool Hidden Gems newsletter. Every month, Tom Gardner spotlights the top-performing stocks that Wall Street overlooks. Sign up today for a 30-day free trial.
Nathan Parmelee has a beneficial interest in shares of Hooker Furniture but no financial interest in any of the other companies mentioned. You can view his profile here. The Motley Fool has an ironclad disclosure policy.
