The Housing Rebound Is Benefiting These Furniture Companies
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Furniture companies are looking like a great way to play the housing rebound. As more new homes are bought, the demand increases for furniture to go with all those new homes. Furniture companies are also benefiting from the overall rebound in the economy. As the wealth effect spreads from rising home and stock prices, consumers are choosing to spend on items they have previously put off, and among those purchases are new furniture for their existing homes. These three furniture companies target the middle market and have built great businesses.
You'll do more than recline with La-Z-Boy
La-Z-Boy (NYSE: LZB) is best known for its signature recliners. The company now manufactures furniture that is sold in thousands of retail outlets in the U.S. and Canada. The company also has a network of La-Z-Boy Furniture Galleries and Comfort Studios.
In the company's latest fourth quarter earnings report, consolidated sales increased 9.8% and same-store sales for La-Z-Boy Furniture Galleries increased 11.2%. La-Z-Boy was able to increase margins at all its divisions.
In looking forward, the company still has 4.2 million shares remaining to purchase in its authorized buyback program. La-Z-Boy has $119.58 million in cash and only $7.63 million in debt to fund the buyback. The stock pays an annual dividend of $0.16 for a yield of 0.80%. The dividend payout ratio is only 5%, so there's more room to increase the dividend.
The stock just hit a new 52-week high and is up over 76% in the past year. The company is now entering the first quarter, and summer months are typically its slowest time--the company will even idle its plants for one week of maintenance and vacation time for employees. Considering these factors, it would be best to wait and buy on a pullback or after the first quarter.
An all-in-one shop
Ethan Allen (NYSE: ETH) not only manufactures furniture, but offers a full design service. It's business model is focused on providing a one-stop shop for its customers to furnish their entire house. An added bonus for buyers is free local delivery. The company operates approximately 300 design centers.
In the latest quarter, consolidated net sales decreased 4.4% to $168.1 million. Adjusted earnings, however, grew 50% to $6.1 million. For Ethan Allen, this quarter is typically its slowest delivery quarter and that explains the net sales drop. Earnings increased as management has been reducing costs and boosting the bottom line.
In looking forward, Ethan Allen has a series of new products that it is rolling out into its design centers. The new products have new styles, colors and finishes to attract a younger buyer. In addition to new product offerings, international expansion is in the cards. Ethan Allen just opened its second European location in Antwerp, Belgium, and its other location is in Brussels. The company has plans in place to open stores in Saudi Arabia, Jordan, Korea, Romania, and China.
To boost brand awareness, the company plans to increase ad spending to capture the strong fall market. Starting in September, Ethan Allen is going to spend 10% to 20% more than it did last September to reach 3 million to 4 million more households than last year. The company is hoping the increased ad spending boosts sales.
The south's furniture maker
Hooker Furniture (NASDAQ: HOFT) is one of the south's best known furniture manufacturers. The area around North Carolina and Virginia is known for making great wood furniture. Among them, Hooker Furniture is the market leader.
For the first quarter, Hooker Furniture reported net sales of $56.3 million and net income of $2.1 million. This compares to net sales of $51.7 million and net income of $1.0 million in the prior year. The strength in the latest quarter was the result of higher sales across all operating units and increased operating margins.
To achieve higher levels of growth going forward, the company is expanding its product line outside its core demographic. Its new Homeware product line is being launched to target young people just getting started and entering the workplace. This new line will be sold online and is easily assembled in the home without any tools. The second new product line is geared towards retirees moving into senior living facilities, which is a rapidly growing market.
Hooker is also getting active in e-commerce with its P3 initiative. Hooker is building out e-commerce sites with its independent dealers to offer brands from Hooker Furniture. As more buying is done online, the growth prospects for Hooker in this arena are tremendous. By setting the e-commerce site as a partnership with its dealers, the likelihood for success is much greater as both parties have a vested interest in achieving results.
All three companies have benefited from the housing rebound and an overall stronger economy. As the economy continues to improve, I see further gains for these three companies. All three are well-managed and have solid business plans going forward.
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.
Mark Yagalla has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!