Sector financial performance:

This company, which is primarily a retailer of residential furniture and accessories, 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.

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Company performance:

It seems that comparable sales bounced back to be a positive number in the second quarter of 2018 with strong order growth (3.4% growth). Since 2016, while his company had managed to deal with the slowing down traffic by promotion its comparable sales eventually went down in 2017. The decline in same-store sales has been partially offset by increased sales from opening of new stores and it seems the deleveraging of extra costs of new store opening has been moderate.

The first six months of fiscal 2018 compared with 2017 (ended 06/30/2018)

Comparable sales decreased by 0.1% (increased 1.3% for second quarter).

Net sales decreased by 0.2%.

The fiscal 2017 compared with 2016

Comparable sales decreased by 1.3% primarily due to decrease of about 3.5% in transactions offset by increase of 2.1% in transaction size.

Net sales decreased by 0.2%.

Fiscal 2016 compared with 2015

Comparable sales increased by 2.1% primarily due to increase of about 2.3% in transaction size offset by decrease of about 0.2% in transactions.Net sales increased by 2.1%.

Fiscal 2015 compared with 2014

Comparable sales increased by 2.5% primarily due to the increase of 4.7 in transaction size offset by decrease of 2.3% in transaction.

Net sales increased by 4.7 %.

Its gross margin has been at around 54% (excluding occupancy and shipping costs) since 2014 primarily due to improved sales/product mix offset by promotion. However, due to the increased SG&A as percentage of sales during the same period, its operating margin thus decreased to about 5% in 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of 18 ($22). We think that its stock is being relatively fairly valued considering the relatively less impacts of industry climate on the performance of its existing stores and new opened stores.