The Furniture Industry Is Levered For Big Profits

Monday, December 14, 2020 | Thomas Hughes
The Worst Is Behind The Furniture Industry

The furniture industry has its shares of trouble over the past few years. First, the trade war put a squeeze on profits, and then the pandemic came along to cut into business even more. While there is plenty of woe in the story I have to say we’re talking about a case of that-was-then-this-is-now and the now-story is good. Basically, the trade war sparked an improvement in operational efficiencies that have the industry set up for profits now. Not only have the industry’s supply chain issues been largely mitigated but margins are widening and business is accelerating. The best evidence I can give is the fact YOY 2020 revenue is down from last year but profits are up, way up.

Haverty Furniture Beats, Raises Guidance, Pays Special Dividend

Haverty Furniture (NYSE:HVT) results weren’t great in the 2nd quarter but the rebound has been quite strong. The company reported a 42.7% decline in YOY revenue for the 2nd quarter but saw that increase more than 100% sequentially to a 3.4% YOY gain in the 3rd. More importantly, earnings in the 3rd quarter expanding more than 200% from the same quarter last year to $0.97. This not only beat the consensus but more than makes up for the $0.52 loss posted in the second.

More importantly, Haverty guided the calendar 4th quarter higher than consensus. While not giving specific numbers the company is expecting sales, margins, and earnings to be comparable to the 3rd quarter. The most telling thing coming out of the earnings cycle is the dividend. The company increased the distribution for the 2nd time this year (after reducing the payout earlier) and paid a special dividend. The increase puts the payout above the pre-COVID level, the special distribution was worth $2 or about 7.5% in yield. The regular payout is worth about 3.35% annually and it is expected to grow.

The Furniture Industry Is Levered For Big Profits

Nothing Lazy About La-Z-Boy

La-Z-Boy (NYSE:LZB) also reported a strong 3rd quarter and gave positive guidance. The company says demand is surging across all segments of the business and driving a record backlog. The company also says it is ramping up its domestic and foreign production in tandem with demand increases and that is adding leverage to earnings. On a comp-basis, written same-store sales increased 34% in the quarter and, if results from others in the business are any indication, accelerating in the 4th. Regarding revenue and EPS, revenue surged 61% sequentially from the calendar 2nd to calendar 3rd with a 350% increase in earnings.

"Demand across all La-Z-Boy businesses is at record levels as consumers continue to allocate more discretionary spending to home furnishings. Orders are fueling an unprecedented backlog and our supply chain team is doing a great job to continually increase weekly production to service customers and drive increased delivered sales,"

The Furniture Industry Is Levered For Big Profits

Hooker Furniture Is Leveraging The Luxury Market

Hooker Furniture (NASDAQ:HOFT) is not having quite the same rebound as Haverty Furniture Company or La-Z-Boy but there is a mitigating factor. The company has a large presence in the industrial furniture market specifically senior and assisted living and that business is still suffering. What makes the 5.4% decline in YOY revenue so surprising is that gains in the home-furnishing segments nearly offset a double-digit decline in the industrial segment. And the fact that cost-leverage and product-mix resulted in a 154% YOY increase on a GAAP EPS basis.

Hooker Furniture is putting its cash to good use. The company not only improved its cash-position by 85% over last year it paid down some of its already low debt level and increased the dividend. The company increased the payout by 12.5% and the payout ratio is still a very-low 30% of earnings. Based on the results and the outlook there is a high-probability the company will make a 9th consecutive increase next year. Shares of HOFT are in a clear uptrend and consolidating for another move higher. Now that price action is at a two-year high the door is open to at least another 15% of upside.

The Furniture Industry Is Levered For Big Profits

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7 Retailers That Are Bucking the E-Commerce Trend

Once again it appears that the death of brick and mortar retail appears to be exaggerated. First-quarter earnings are showing that many retailers that rely on in-person traffic for a considerable chunk of their business are seeing a rebound in sales. And many are planning to open stores in 2021.

This isn’t to say that e-commerce is going away. In fact, a common feature for many of these stocks is that they either developed or enhanced their digital footprint during the pandemic.

This special presentation focuses on retailers that are planning to add to their brick-and-mortar footprint in 2021. And some are planning to do so by a substantial margin. Once again, this doesn’t signal a transformative shift in the overall trend, but it does mean that for the foreseeable future, brick and mortar will have some relevance.

View the "7 Retailers That Are Bucking the E-Commerce Trend".

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
La-Z-Boy (LZB)1.9$43.12+1.5%1.39%28.37Buy$42.67
Haverty Furniture Companies (HVT)2.0$50.61+3.1%1.98%12.34Buy$36.00
Hooker Furniture (HOFT)1.6$40.22+0.5%1.79%14.31Buy$30.00
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