Sector financial performance:

This company, who primarily designs, sources, and markets upscale furniture including sofa, dining table, and beds, has been grouped into residential upscale furniture – design &distributor sector in furnishing industry.

While the increased product price of third party supplier may play a role, the diminished upscale furniture sales of US companies in this sector is directly related to competition of international manufacturers, which possess price advantage and flexible distribution channels. Therefore, while performed well in high end furniture segment, their sales volume went down (about 5% and 8% in 2015 and 2016). As a response to the decreased sales, companies tried to push up sales volume (up by 1% in 2017) by discounting and expansion of distribution channels or stayed away from value segment and turned to focus on high end segment.

We have seen many positive signals in high end market in 2018 as indicated by increasing price and sales volumes. However, companies seem to be still struggling in value market.

Weak demand, working with increasing pressure of cost from third party manufacturers, squeezed the gross margin of companies, which has been seen typically down to about 20% from about 22% of 2014 but bounced back to about 21% in 2018. The typical average SG&A as percentage of sales is improved to about 12% and the average operating margin thus went up to about 9% in 2018.

The typical enterprise price/EBI(a) ratio: 13 (interest/EBI ratio of 3%).

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Company performance:

It seems that the sales volume of this company finally turned into positive in 2018 after a few years’ decrease due to changes in products mix of this company as a result of shifting of business strategy from lower end products to high end market. The increased average selling price is also a result of changes in business strategy.

The first six months of fiscal 2018 compared with same period of 2017

Sales increased by about 23% attributable to increase of 21% (19% for second quarter) in price and increase of 2% (4% for second quarter) in sales volume.

Sales in US market increased by 7%.

The fiscal 2017 compared with 2016

Sales increased by about 15% attributable to increase of 71% in price offset by decrease of 33% in sales volume.

Sales in US market decreased by 15%.

Fiscal 2016 compared with 2015

Sales increased by about 3% attributable to increases of 52% in price offset by decrease of 32% in unit volume.

Sales in US market decreased by 23%.

Fiscal 2015 compared with 2014

Sales decreased by about 10%.

Its gross margin has gone up back to 20% in 2018 primarily due to higher margin of new product mix. Its SG&A as percentage of sales went down to about 10% during this period as sales went up and its operating margin went up to 10% 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of 8 ($1.8). We think that its stock is being relatively undervalued.