Sector financial performance:

This company, who is primarily a manufacturer, marketer, and retailer of home furnishing products, has been grouped into furniture – manufacture& retail sector in furnishing industry.

Demand, from stores-based consumers, for the products of companies in sector has been weak since 2016 and started to decline in 2018,  which is consistent with the performance of furniture companies in other sectors and may present a general result of slowing down traffic in retail stores as indicated by significant decrease (or slower growth) in comparable sales of those companies’ stores during the same period of time (the typical annul growth in comparable sales went down by 3.5% in 2018 as compared with growth of 6% in 2015).

Benefiting from expansion business strategy of retailers in this sector as a reaction to declining traffic and better performance in international retail customers, the wholesale of these manufacturers in this sector seem to be less impacted than their stores. However, we think the wholesale of these companies this sector will eventually go down as downward trend in US retail market continues.

The typical average gross margin of companies has been seen to go up from about 54% to about 58% in 2018 primarily due to shifting of sales mix to higher margin retail/logistics segment  for some of companies as a result of expansion of new stores. However, as expansion of business the average SG&A as percentage of sales went up as well. Therefore, we see the average operating margin was down to about 6% 2018.

The typical average enterprise price/EBI ratio: 18(interest/EBI ratio of 1%) and stock price/sales ratio is 0.7.

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Company performance:

It seems that the demand for products of this company since 2016 has been declining as indicated by the slowing down growth in comparable sales of its retail stores (annul growth in booked orders from comparable stores slowed down from 11% of 2015 to -2.6% of 2018). Company has tried to develop new stores in new market as reaction to slowing down comparable stores sales. Its wholesale revenue turned to go down again as the unfavourable retail situation continues.

The first six months of fiscal 2018 compared with 2017

Retail sales increase by 3.6% attributable to increase in new stores offset by decrease of 2.6% (same in second quarter) in comparable retail sales (orders booked).

Wholesale to independent stores increased by 3.1%(-1.6% for second quarter)

The fiscal 2017 compared with 2016

Retail sales increase by 5.3% attributable to increase of 1.8% in comparable retail sales (orders booked) and increase in new stores.

Wholesale to independent stores increased by 3.9%.

Fiscal 2016 compared with 2015

Retail sales increase by 2.1% attributable to increase of 1.4% in comparable retail sales (orders booked) and increase in new stores.

Wholesale to independent stores decreased by 13%.

Fiscal 2015 compared with 2014

Retail sales increase by 15% attributable to increase of 11% in comparable retail sales (orders booked) and increase in new stores.

Wholesale to independent stores increased by 7.4%.

Its gross margin has gone up from 54% of 2014 to about 61% of 2017 primarily due to shifting of mix of sales to retail and logistics. However, due the corresponding increase in SG&A as percentage of sales as a result of shifting of sale mix, its operating margin has only gone up to about 5% in 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of 16 ($24). We think that its stock is being relatively fairly valued.