Is the Best Already Past for Furniture Makers?
By MICHELLE LEDER
March 31, 2002
HARES of major furniture makers outperformed the market last year, but with the economy strengthening, the companies may not fare as well this year, some analysts say.
Among the biggest companies in the $23 billion wholesale furniture market is Furniture Brands International (news/quote), based in St. Louis; its brands include Broyhill, Lane and Thomasville, as well as three added in a recent acquisition: Henredon, Drexel Heritage and Maitland-Smith. On March 4, after the company advised that its earnings were likely to be 5 cents a share higher than expected for the year, the stock hit a new 52-week high of $41.10.
It ended last week at $36.45, but it is still up more than 13 percent for the year. Other large manufacturers, including La-Z-Boy Inc. (news/quote) of Monroe, Mich., and Ethan Allen Interiors (news/quote) of Danbury, Conn., have also performed well in recent months. La-Z-Boy now trades at $27.45, up almost 26 percent for the year, and Ethan Allen closed last week at $38.06, down nearly 8.5 percent for the year.
Analysts predict that pent-up demand for furniture among recession-weary shoppers is likely to bolster sales and earnings in coming months. Furniture shipments dropped by 10 percent last year but are expected to increase by 4 percent this year, according to the American Furniture Manufacturers Association. The housing market remains strong, according to recent home-sales figures, and analysts say furniture sales tend to lag behind housing sales by about six months.
But furniture stocks tend to be cyclical. They have performed poorly when interest rates begin to rise, as looks likely this year.
"There's a lot more risk today in some of these names than when they were trading in the $20's," said Beryl Bugatch, a furniture analyst at Raymond James Financial (news/quote) in St. Petersburg, Fla. Still, Mr. Bugatch currently has strong-buy ratings on Furniture Brands and Ethan Allen, with 12-month price targets of $48 on the two companies.
Wall Street's consensus earnings estimates for Furniture Brands are $2.37 a share this year and $2.83 for 2003, according to figures compiled by Thomson Financial/First Call. For Ethan Allen, the expected numbers are $2.12 this year and $2.44 in 2003, and for La-Z-Boy, $1.19 and $1.44.
Susie Hultquist, an analyst at Liberty Wanger Asset Management, which owns more than 650,000 shares of Furniture Brands in the Liberty Acorn fund, says the Wall Street estimates are too low. Using what she considers a conservative estimate, Ms. Hultquist said she expects Furniture Brands to earn at least $2.40 a share this year and more than $3 a share next year.
"This company is not the same as it was in 2001," she said, referring to the company's acquisitions and reduced debt and payroll. "This stock has significant room to grow."
At year-end, Furniture Brands bought Henredon, Drexel Heritage and Maitland-Smith for about $275 million from LifeStyle Furnishings International, a privately held company. Ms. Hultquist called the acquisition "a huge opportunity" to increase market share and profit margins.
Lynn Chipperfield, the chief administrative officer at Furniture Brands, said the high-end furniture market, hit hard in 2001, was poised to rebound this year. Before the acquisition, Thomasville was the company's most upscale brand. Mr. Chipperfield added that Henredon, Drexel-Heritage and Maitland-Smith, which make higher-end furniture, all have healthy profit margins.
"These are not fixer-uppers," Mr. Chipperfield said.
But Margaret M. Whelan, a furniture industry analyst at UBS Warburg, said she believed that the three acquisitions were ill-advised. Furniture companies in general are facing increased pressure from overseas manufacturers, she said. "This is a lousy industry period," Ms. Whelan said.
She has a hold rating on both Furniture Brands and La-Z-Boy, but she does rate Ethan Allen a buy and has a 12-month price target of $45 on the stock. "It has a good product, good brand name and good price points," she said.
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