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Strategies & Market Trends : Galapagos Islands -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (4686)	10/3/2002 6:33:30 PM
From: MulhollandDrive	Read Replies (2) \| Respond to of 57110

oh look ....a moody analyst...i'm sure another 6% haircut and he'll be bouncing off the walls... forbes.com Home Furnishing Ethan Allen Sees Prices, Shares Fall Davide Dukcevich, 10.03.02, 3:55 PM ET NEW YORK - Joel Havard could not contain his glee as he watched shares of furniture giant Ethan Allen Interiors fall by almost 6% this morning. "That's very good," said the analyst with Winston-Salem, N.C.-based BB&T Capital Markets. "I love seeing good companies get cheaper." Indeed, most agreed that the market overreacted to Danbury, Conn.-based Ethan Allen's (nyse: ETH - news - people ) announcement to cut furniture prices today. Observers with a broader view are more concerned with a deeper problem: the company's need to import more of its goods from cheaper, overseas manufacturers. Ethan Allen said it would cut prices by up to 20% on about 15% of its total collection. The move is designed to draw younger, less affluent customers to the brand, which is on the upper-middle tier of the home-furnishing segment. It also shows that Ethan Allen, which has held the line on prices thus far, isn't seeing the sales rebound it was expecting. The price knockdown is expected to cost the company about $50 million, according to Keith Hughes, vice president of equity research with Atlanta-based Suntrust Robinson Humphrey. It's an expense Ethan Allen can easily absorb. The company is virtually debt-free (see "Stock Focus: Companies With Low Debt") and had free cash flow of $94 million in fiscal 2002, which ended in June. The company also saw earnings rise 3% to $2.14 per share. It is to Ethan Allen's credit that it improved profit in a tough year for the home-furnishing sector. Still, revenue for the firm, which sells through a network of more than 300 stores, fell by 1% in fiscal year 2002. Though better than the meek industrywide revenue decline of 4% to 5%, the company is correct in trying to expand beyond its upper-income customer base. "It behooves Ethan Allen to reach down," says BB&T's Havard. The home-furnishing sector--like virtually all consumer goods industries in the U.S.--is seeing prices decline, in part because of cheap imported goods. "This is a sign of what's going on in the industry," says Hughes. In order to compete, he adds, companies are going to have to expand their acquisitions of goods from abroad. Ethan Allen currently imports only 10% of its total furniture sales; management has said it will increase that to 15% by the end of next year. "The number hasn't expanded as aggressively as it has with other players," Hughes says, pointing to competitor Furniture Brands International (nyse: FBN - news - people ), which imports about 20% of its offerings. And with more goods from abroad, Ethan Allen would be able to afford even more price cuts.