Furniture Stores Seeing Better Days

by: Sageworks, Inc.

By Mary Ellen Biery

As the semi-annual furniture trade show wrapped up recently in High Point, N.C., there was fresh evidence that furniture stores are seeing better days in a slowly improving economy.

In addition to reports that retail buyers were placing orders at the High Point Market amid year-over-year sales growth in their stores, data on publicly traded and privately held furniture stores show a continued rebound in business from tough times during the recession.

Bassett Furniture Industries Inc.'s (NASDAQ:BSET) corporate stores have posted four quarters in a row of improved year-over-year operating results, and sales at the company-owned stores rose 6.5 percent in the Feb. 25-ended quarter, on a comparable-store basis.

Specialty mattress maker Select Comfort Corp. (SCSS) earlier in April said sales at company-controlled, comparable stores increased a record 34 percent in the March 31-ended period. And the International Sleep Products Association, a trade group for mattress makers, recently raised its forecast for 2012 sales.

Sageworks, a financial information company, conducted a financial statement analysis of privately held furniture stores and found that sales increased nearly 8 percent in 2011, on average. The strength last year followed average 2010 sales growth of about 4 percent.

"There was a significant contraction in sales at furniture stores in 2008 and 2009, so it could be that the growth we're seeing is compensating for the contraction that happened during the recession," Mulholland said.

Sales fell nearly 6 percent in 2009 and about 3 percent in 2008, Sageworks data shows.

"One thing that might be reflected here is that the jobs outlook seems to be improving a little bit," compared with previous years, Mulholland said. "People who are more comfortable in their position, who don't think layoffs are coming or who recently found a job may be more likely to make these large purchases."

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Net profit margins for privately held furniture stores have actually rebounded to pre-recession levels. After being roughly breakeven to 1 percent from 2006 to 2009, margins improved to about 2 percent in 2010 and to more than 3 percent in 2011.

Veteran furniture-industry analyst Jerry Epperson, who is managing director of Richmond investment banking firm Mann, Armistead & Epperson Ltd., said in a recent research note that compared to the 2008-2011 period, more furniture stores are opening than closing this year.

"Consumer traffic has risen with the perception of a better economy, more housing activity, a recovery in home remodeling," he said. And furniture shoppers, he added, "are finally fulfilling needs ignored for four years."

At the same time, furniture stores still have a long way to go for sales to reach levels during the housing boom. Epperson said that even after two years of a "recovery" in the industry, furniture and mattress retail sales are 11 percent below where they were in 2007. Meanwhile, total U.S. retail sales of all consumer goods are back to 2007 levels, driven by vehicle sales, travel and some other categories, according to Epperson.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.