Sector financial performance:

This company, who is primarily a manufacturer, importer, marketer/wholesaler and as well retailor of upholstered and wood furniture, has been grouped into furniture – manufacture& wholesale sector in furnishing industry.

As manufacturers, companies have more flexibilities than design-only companies to control costs and lower price. Therefore, while sales volume declined in 2016, which is consistent with furniture companies in other sectors presenting a general competition factor across industry, the relatively strong demand for those companies’ products, as indicated by the averaged increase in sales volume of companies in this sector in the past several years, may be directly related with their relatively low price. Therefore, as market demand is getting stronger since 2017, we see the sale volumes jumping up from some of major companies. It is certainly possible that increase in ecommerce sales help offset the decreased demand from stores. The average increase in sales volume is 8%, 4%, -3%, and 4% in 2018, 2017, 2016, and 2015 respectively.

Obviously, companies felt the pressure from increasing costs and limited selling price of products as presented by the margins. The typical gross margin of companies has been seen down to about 22% in 2018. However, companies also managed to lower its average SG&A as percentage of sales and thus still are able to keep the operating margin unchanged at around 7% 2018.

The typical average stock Price/cash flow ratio: 17(interest/EBI ratio of 0%) and stock price/sales ratio is 0.8.

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Company performance:

It seems that the demand for products of this company may be picking up in 2018 as compared with flat growth in organic sales volume of Upholstery and Casegoods products in the past several years.

 The first three months of fiscal 2019 compared with the same period of 2018

Organic Sales increased about 8% with increase in sales volume of Upholstery and Casegoods products.

The fiscal 2018 compared with 2017

Organic Sales increased less than 4%.

Fiscal 2017 compared with 2016

Organic Sales was flat.

Fiscal 2016 compared with 2015

Organic Sales increased attributable to increase in sales volume of upholstered products.

Its gross margin has gone up to about 39% in 2018 from about 36% of 2014 primarily due to changes in sales mix resulted from increase in sales of new and acquired retail stores and generally improved manufacture efficiency. With a SG&A as percentage of sales of about 31%, its operating margin increased by about 150 basis points to 8.5% in 2018.

Stock price

This stock currently has a stock price/cash flow ratio of 18 ($31). We think that its stock is being relatively slightly undervalued considering that, while it may benefit more than its wholesale peers from its rebounding retail stores.