01/14 T =Furniture Cos. Seen Beating 4Q Views On Strong Demand
LADF - NASDAQ
By Mary Ellen Lloyd
CHARLOTTE (Dow Jones)--The nation's largest furniture manufacturers and
retailers benefited from continued strength in housing and consumer confidence
during what analysts say was a strong quarter.
Many major furniture companies are expected to meet or beat Wall Street's
expectations as they post double-digit earnings gains.
"A lot of us got nervous with the (equities) markets falling off in September
and October, but the consumer never blinked," said Wheat First Union furniture
analyst John Baugh.
Neither did furniture companies see the usual Christmastime downturn in
sales, said Scott & Stringfellow analyst Cody McGarraugh. That strong demand,
plus sizable backlogs built up earlier in the year, should mean top-line growth
of 10% to 15% for many furniture companies, he said.
"I think the fourth quarter will continue the trends we've seen all year," he
said.
Indeed, Ethan Allen Interiors Inc. (ETH) and Rowe Furniture Corp. (ROW) this
week reported earnings topping the consensus estimates of analysts surveyed by
First Call Corp.
As reported Wednesday, Ethan Allen said net income for the December-ended
fiscal second quarter rose 11% to $21.2 million from $19.1 million in the
year-ago quarter. Earnings per share rose to 75 cents a diluted share from 65
cents a year ago, with fewer shares outstanding in the recent quarter. Analysts
had expected earnings of 73 cents a share. Sales for the Danbury, Conn.,
manufacturer and retailer rose 12% to $193.7 million.
And Rowe Furniture, which makes medium-priced upholstered and wood furniture,
on Tuesday reported fourth-quarter net income rose about 15% to $3.9 million,
or 31 cents a diluted share, from $3.4 million, or 26 cents a year ago. First
Call had a consensus view of 27 cents a share for the McLean, Va., company.
There were fewer shares outstanding in the latest quarter.
Analysts expect the nation's largest public furniture-maker, Furniture Brands
International Inc. (FBN) to post roughly a 30% gain in fourth-quarter earnings
despite a tough comparison to the year-ago quarter.
Warburg Dillon Read analyst John Stanley sees Furniture Brands posting
earnings of 47 cents a share, up from 35 cents a year ago and two cents higher
than the Street consensus. Both figures include ongoing charges for
depreciation and amortization that resulted from an asset revaluation when the
company emerged from Chapter 11 reorganization in 1992. Furniture Brands makes
Lane, Thomasville and Broyhill furniture.
Furniture Brands has seen good momentum throughout the quarter, said Wheat
First Union analyst Baugh.
"Their biggest customer now, I think, is Haverty (Furniture Cos.), and
Haverty just reported an awfully good quarter of sales," he said.
Atlanta-based retailer Haverty (HVT, HVTA) said last week that December
same-store sales rose 10.9%, boosting fourth-quarter same-store sales to 9.1%.
"They're seeing tremendous business, particularly in the Dallas and Atlanta
markets, and they're not promoting to get it," Baugh said. "They're not giving
away credit."
Baugh expects Haverty's earnings for the December-ended fourth quarter to
jump 17% to 54 cents a diluted share from 46 cents a year ago. The company is
scheduled to release quarterly results Feb. 4.
He said Haverty has gradually upgraded merchandise to fit trends in customer
tastes and has developed good service.
Analysts also see a strong quarter from Stanley Furniture Co. (STLY), with
the consensus estimate putting earnings for the December-ended fourth quarter
up 24%, to 47 cents a diluted share from 38 cents a share, adjusted for a
2-for-1 stock split in May. Recent product introductions have helped the
Stanleytown, Va., company gain market share, and the company's youth-furniture
sales remain solid.
"It's just good old manufacturing," said Scott & Stringfellow analyst
McGarraugh, who sees 7% to 10% revenue growth in the quarter for Stanley.
"They're quality products, they're great values, and they service their
retailers well. Plus, they have one of the best management teams in the
industry."
Baugh said margins are also improving for most of the major furniture-makers
and retailers.
"We really don't have much inflation on the cost side," he said. And an
increase in the number of units being sold is helping leverage the high, fixed
infrastructure costs of most furniture companies.
In particular, analysts said, Ladd Furniture Inc. (LADF) is seeing margin
expansion, thanks to operational changes put in place in recent years. The
company divested several divisions to focus on more profitable lines, and a
revamped product line has helped put the company's Pennsylvania House unit in
the black.
The Greensboro, N.C., company's contract-furnishings business also remains
strong and should contribute to a 48% gain in earnings for the fourth quarter
ended Jan. 2, according to analysts. The First Call consensus estimate for Ladd
is 46 cents a share during the 14-week quarter, compared with 31 cents in the
13-week period a year ago.
One exception to the rosy views regarding furniture companies has been
Heilig-Meyers Co. (HMY), which posted lower third-quarter results in December
and is expected to post lower results again in the February-ending fiscal
fourth quarter. The company said recently it is pursuing the sale of its Rhodes
division, which has run up heavy losses in recent quarters. The company
reported third-quarter net income of 10 cents a diluted share, compared with a
loss of 87 cents a share including a pretax restructuring charge in the
year-ago quarter.
Nevertheless, analysts generally expect interest rates and housing trends in
1999 to remain favorable for furniture sales. An expected slowdown in the U.S.
economy, however, will likely mean slower industrywide growth than in 1998.
The Association of Furniture Manufacturers expects sales of furniture and
bedding to increase 2% to $59.1 billion in 1999, compared with 5.8% sales
growth projected for 1998.
The manufacturers' trade group also sees a slowdown in industry shipments,
which exclude bedding and are expected to grow only 2.1% this year. Shipments
grew 13.2% to $24 billion in 1998, according to the AFMA's most recent
estimates.
"I think the first quarter's going to be somewhat of a tougher comparison
because it's a shorter quarter," Scott & Stringfellow's McGarraugh said. He
also noted that the first quarter of 1998 was the strongest quarter of the
year.
- Mary Ellen Lloyd; 704-371-4033
(END) DOW JONES NEWS 01-14-99
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