Sector financial performance:

This company, which is primarily a retailer of domestic merchandise and residential furniture (35% of sales), 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, while this company has kept closing its poor performance stores, the growth in its comparable sales has decreased until it turned into negative number in 2016 and accelerated in 2018 outweigh decrease resulted from stores’ closure, which contributed most of decrease in net sales in the past several years.

The first three months of fiscal 2019 compared with 2018(ended 2018-05-27)

Comparable sales decreased by 8%.

Net sales decreased by 9%.

The fiscal 2018 compared with 2017(ended 2018-03-03)

Comparable sales decreased by 2%.

Net sales decreased by 3.6% (estimated after excluding extra week).

Fiscal 2017 compared with 2016

Comparable sales decreased by 1.0%.

Net sales decreased by 3.4% primarily due to stores’ closure.

Fiscal 2016 compared with 2015

Comparable sales increased by 0.7%.

Net sales increased by 0.4%.

Its gross margin (including store occupancy and shipping costs) has been down from about 41% of 2014 to about 36% of 2018 primarily due to promotion and clearance. In addition to the increase in SG&A as percentage of sales during the same period, its operating margin thus decreased to about 0% in 2018.

Stock price

This stock currently has an enterprise price/sales ratio of 0.2 ($2.7). We think that its stock is being relatively slightly overvalued considering the continuing poor performance in its existing stores when its peers are making turn.