Home Decor Retailer Results Seen Reflecting Improved Demand
Tuesday 04/06/2010 4:20 PM ET - Dow Jones News
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By Mary Ellen Lloyd
Of DOW JONES NEWSWIRES
Two major home-decor retailers reporting earnings this week are expected to provide fresh evidence that consumers are spending more on discretionary furnishings. And while the bigger-ticket, home-furniture industry could take years to return to pre-recession production levels, there are signs that it, too, is rebounding amid some improvements in the housing market and the economy.
Analysts expect Bed, Bath & Beyond Inc. (BBBY) and Pier 1 Imports Inc. (PIR) will show year-over-year improvements as tighter inventory levels heading into the holidays, reduced clearance activity and improved demand aid sales. Bed, Bath & Beyond reports results Wednesday, while Pier 1's fiscal fourth-quarter report is Thursday.
"Overall, the home furnishings industry is still a pretty difficult environment to be operating in," said Toon van Beeck, an analyst for research firm IBIS World.
But he expects both Bed, Bath & Beyond, the largest U.S. player with 23% market share, and Pier 1 to perform "pretty well." Both have stripped out costs and face fewer competitors since Linens 'N Things shut its stores a year ago. Pier 1, too, has closed dozens of underperforming stores in recent years, so profitability has improved.
"A bit of a turnaround" in the retail sector should also show up in the retailers' results, van Beeck said. He expects the $26.2 billion home-furnishings store industry to increase sales by 1.3% in 2010 before growing 3.2% in 2011.
Williams-Sonoma Inc. (WSM), Ethan Allen Interiors Inc. (ETH) and Haverty Furniture Cos. (HVT) all reported improving trends last month.
Housing turnover has posted year-over-year growth for eight months, an important sign for home-related retailers, KeyBanc Capital Markets analyst Bradley Thomas said in a note to the brokerage firm's clients Tuesday. Home-related purchases are likely to be made in the three to six months following a move, whether it's a move into a new or existing home, he said.
Pier 1 would wrap up its first profitable year in five if it posts the 31 cents a share in fourth-quarter earnings expected by analysts polled by Thomson Reuters. The Fort Worth, Texas, retailer posted a loss of 33 cents a share a year earlier. It has revamped merchandise, cut costs and reduced promotions in the last couple of years as it continued a multi-year turnaround effort.
Pier 1 shares closed up 1.1% at $7.43, while Bed, Bath & Beyond shares fell 1.1% to $44.62.
Fourth-quarter earnings at Bed, Bath & Beyond, are expected to increase by nearly a third, to 73 cents a share from 55 cents a year earlier, as the retailer continues to benefit from industry consolidation, new stores and tight management of expenses.
Both retailers, which sell tabletop accessories, candles and other decor, are likely taking share from smaller players. And consumers have shown more of a willingness to make small purchases to spruce up their homes in recent months.
Meanwhile, the U.S. residential-furniture industry is seeing some positive signs after several stormy years marked by dozens of domestic plant closings tied to weak demand and the continued shift of manufacturing overseas.
Bassett Furniture Industries Inc. (BSET) on Monday said it would re-open a Newton, N.C., plant idled last year in order to begin making a new line of lower priced sofas and chairs.
Bassett Furniture President and Chief Executive Robert H. Spilman Jr. said in an interview Tuesday that he is a little more optimistic about recent order trends, though storm clouds haven't vanished.
"I see the sun poking out from time to time and then going back behind the clouds," he said. "I do feel better about the last several weeks of orders, but still, we've got a long way to go to get back to where we were" before the recession.
That's one reason the new plant will be making upholstered furniture priced about 20% below Bassett's lowest-priced lines currently. Customers will still have some choices in frames and fabrics, but the line is designed to appeal to the current consumer-spending mindset and to be shipped quickly, within days, to retailers.
"This is a full-blooded attempt to return to some price points we haven't been in awhile but think are important to drive traffic to the stores and to attract some retailers," he said. "We haven't had a $600 retail sofa in five or six years."
"The consumer today is definitely more price conscious than they were prior to the recession, and not everyone necessarily cares whether or not you can have 750 fabrics to choose from," Spilman said.
Spilman said he hopes the timing of the announcement will be favorable to the industry's largest trade show, which begins April 17 in High Point, N.C.
Brian Casey, chief executive of the authority that runs the High Point Market, said in an interview last week other manufacturers are also reporting slight improvements in the business environment. Some producers that haven't exhibited for years at the High Point Market are returning this year, and retail buyers and interior designers are also returning, he said.
"All up and down the food chain, we're beginning to see a renewed exuberance in this industry," Casey said.
-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; maryellen.lloyd@dowjones.com
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(END) Dow Jones Newswires
04-06-10 1620ET
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