Sector financial performance:

This company, primarily a retailer of domestic merchandise and home furnishing (mainly) products, has been grouped into retailer-domestic merchandise and home furnishing sector in furnishing industry.

Benefited from continuously strong growth in online sales and bouncing back of in-stores demand for the home furnishing products since the second half of 2017, the downward trend that we have seen from companies in sector since 2015 seems to be making a turn in 2017 and continuing gin 2018 as indicted by re-gaining increase in their comparable brand sales (the typical growth for 2018, 2017, 2016 and 2015: 1.5%, 0.6%. 0.5% and 3%). At the same time, sales from e-commerce have been very strong as indicated by the typical comparable brand growth (online only): 10%, 6%, -3%, and 7% for2018, 2017, 2016 and 2015 respectively.

The typical average gross margin (included occupancy costs and shipping costs) of companies has been seen to go down from about 39% to about 36% in 2018 primarily due to promotions resulted from slowing down traffic of stores. In addition to increase in the average SG&A as percentage of sales, we see the average operating margin was down to 4% from 7% since 2014.

 

The typical average enterprise price/EBI ratio: 20(interest/EBI ratio of 18%) and stock price/sales ratio is 0.6.

                                                                                  click for more about this industry

Company performance:

It seems that the traffic of stores of this company has been declining in the past several years as indicated by the continuing decrease in number of transactions. While this company has managed to deal with the slowing down traffic by promotion, its comparable sales eventually went down after 2016. The decline in same-store sales has been partially offset by increase in sales resulted from opening of new stores.

The first three months of fiscal 2018 compared with the same period of 2017(May 27 2018)

Comparable sales decreased by 0.6% primarily due to lower traffic offset by the bigger transaction size.

Net sales increased by 0.4%.

 The fiscal 2017 compared with 2016(20180303)

Comparable sales decreased by 1.5% primarily due to lower traffic offset by the bigger transaction size.(including in-store sales mid-single digital decrease offset by strong growth in e-commerce)

Net sales increased by 1.1%.

Fiscal 2016 compared with 2015

Comparable sales decreased by 0.6% primarily due to lower traffic offset by the bigger transaction size.

Net sales increased by 0.9%.

Fiscal 2015 compared with 2014

Comparable sales increased by 1.0% primarily due to the bigger transaction size offset by decreased traffic.

Net sales increased by 1.9 %.

Due to lower margin of new opened stores, the margin of whole company has been dragged down as reflected by deleveraging of increase compensation costs and occupancy costs. Together with promotion and increasing shipping costs, we see its gross margin has been down from about 39% of 2014 to about 36% of 2018.  During the same period, its SG&A as percentage of sales also increased from about 26% of 2014 to about 30% of 2018 due to increase in compensation and advertising costs as a result of expansion and its operating margin thus decreased to about 6% in 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of 9 ($19). We think that its stock is being relatively undervalued considering that, while weak demand for its products, especially from its new opened stores, make it really difficult to maintain cash flow, a multiple of 9 is too low compared with its peers and its slowing down decrease in comparable sales.