By Hiland Doolittle
The Home Furnishings and bedding sector fell prey to the housing market collapse but has rebounded nicely of late. Increased consumer buying power has positively impacted this marketplace; Furniture Today reports sales were up 6 percent in 2013 when sales of the magazine's Top 25 retailers grew from $29 billion to $30.7 billion.
IBIS World indicates that the industry will continue to expand through 2019 as demand for home ownership rises and consumer spending recovers. After the housing failure, the industry came under intense "internal and external" pressure and ended up in price wars that severely cut profits. The outlook has improved as the leading players have sharpened their marketing skills, improved their online sales and developed new products. Some providers in this sector have posted significant gains in share price and profitability.
Traditionally, the home furnishings and bedding sector enjoys strong sales in the fourth quarter so companies with good growth in 2014 should continue to keep the momentum going forward into 2015. In the Home Furnishings and Bedding Sector, Tempur Sealy International Inc (NYSE:TPX) for growth without dividend support and Leggett & Platt, Incorporated (NYSE:LEG) for consistency and a good dividend have appeal.
Tempur Sealy International Inc
Global bedding leader TPX has a 52-week range between the high of 62.00 and the low of 36.12. Shares reached their 52-week high ($61.72) on July 24, 2014. The mark was 71 percent above the 52-week low. On August 19th, 2014, shares were up 63.22 percent over 12 months.
On July 25th, 2014, Joan Stroms of Wedbush noted that unexpectedly strong US sales compensated for weaker than expected sales in Central Europe. Stroms explained, "New products are resonating well with consumers and retailers, fueling a rejuvenation of North American sales, and shipments continue to come in ahead of schedule. Slots per store and distribution points are increasing, which provide good visibility for future sales increases. In addition, TPX-Int'l and Sealy continue to trend positively. While traffic at mattress retailers has been choppy, we remain optimistic that TPX's new products, with nice aesthetics, in-store marketing, and increased ad spend, will help TPX and industry sales overall, with stronger international sales growth."
When it comes to bedding, Tempur is the industry leader owning many of the top and familiar brands in the marketplace including, Tempur, Tempur-Pedic, Sealy, Sealy Posturepedic, Optimum and Stearns & Foster. TPX also has outstanding marketing prowess and always seems to catch the public's eye. On August 6,2014, the Chicago Bears of the NFL announced a contract with Tempur-Pedic to provide mattresses, foundations, pillows and other products at the team's training facility. This publicity certainly does not hurt the Lexington, Kentucky, manufacturer.
Capital Cube cites TPX's superior growth and steady sales. My concerns are that TPX maintains better than average gross margins but fails to bring those margins to the bottom line. Net margin is below peer median. While US sales were up a strong 9 percent in the first six months and compared very favorably to domestic competitors, whose sales only gained 0.9 percent, the company needs its international sales to reach their mark in order to improve the bottom line. If this occurs, you will be glad you bought a home furnishings stock like TPX.
Leggett & Platt, Incorporated
On August 5, 2014, LEG announced the 3rd quarter dividend would increase by $0.01 to $0.31 per share up 3.3 percent. With an annual dividend of $1.24 per share, the dividend yield is 3.7 percent. This is one company that prides itself on its history of 43 consecutive years of issuing dividends. It is worth noting that only 11 members of the S&P 500 have issued consecutive dividend increases for longer periods. This dividend return sets LEG apart from other home furnishings stocks.
On August 19th, 2014, LEG announced a tentative settlement of antitrust claims pertaining to the drawn out polyurethane Prime Foam Products direct purchase case. The company said it expects to realize a $39.8 million pre-tax accrual. The company was quick to support its full year EPS guidance which was issued in July. Not surprisingly, LEG reached a 52-week high at $34.85 the same day. The company was trading 24 percent above its 52-week low of $28.00. The LEG model has been successful because of its diversity, which includes products in four segments of the Household Furnishings sector. These segments include residential furnishings, commercial fixtures and related components and industrial materials.
Over the last 12 months, LEG shares have appreciated by 18.11 percent. Reaching the 52-week high helped boost shares to a comfortable 7.02 percent gain for the month.
One analyst says: "History has revealed that the best-performing stocks during the previous decades have been those that shelled out ever-increasing cash to shareholders in the form of dividends. This makes a lot of sense, as the strongest dividend growers are often the strongest generators of increasing cash flow. Leggett & Platt is one such gem."
While Leggett and Platt shows price to earnings well above peer medians, the reason investors purchase these shares is clearly the company's dividend commitment. As Capital Cube demonstrates, price to book is favorable compared to peers. We can also see that Capital Cube indicates the dividend quality is high quality while the dividend quality trend over the last five years has been solid with 4 years of high quality yields and one year medium quality. There are no other competitors in this sector that make that claim.
LEG has challenges including poor or lackluster margins and mediocre sales compared to peers. But, it is hard not to like the dividend.
The views and opinions expressed above are those of the author and do not necessarily reflect the views of CapitalCube.com, AnalytixInsight, Inc., its affiliates, or its employees.