Sector financial performance:

This company, primarily a retailer (store and e-commerce) of luxury home furnishings, 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 demand for products of this company has kept strong in the past several years, when its peers suffered slowing traffic, as indicated by its comparable sales both from same stores and same brand online sales. This may be attributable to the better store design and high end products that help it less get involved price competition. Sales’ momentum was not able to continue while additional discounting in the first quarter of 2018. New store opening and acquisition also contributed to increase in net sales.

The first three months of fiscal 2019 compared with same period of 2018 (ended 20180505)

Comparable sales (including online sales/same brand) decreased by 1%.

Net sales decreased by 0.8%.

The fiscal 2018 compared with 2017 (ended 20180203)

Comparable sales (including online sales/same brand) increased by 6%.

Net sales increased by 14%.

Fiscal 2017 compared with 2016

Comparable sales decreased by 7%.

Net sales increased by 1%.

Fiscal 2016 compared with 2015

Comparable sales increased by 11%.

Net sales increased by 13%.

Its gross margin (including store occupancy costs) has been down from about 37% of 2014 to about 33% of 2017 primarily due to higher discount rate of products and increased shipping costs but bounced back to 37% in 2018 due to sale mix shifting to higher margin segment (outlet and warehouse sale). In addition to the increase in SG&A as percentage of sales as a result of increased employment costs and corporate occupancy costs during the same period, its operating margin thus still decreased from about 9% of 2014 to about 7% in 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of 34 ($92). We think that its stock is being relatively overvalued considering the uncertainty of generating cash flow from outlet and warehouse sales and possibility of maintaining growth in its comparable sales.