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Some companies thrive, others survive

Scorecard shows profits rose for 13, declined for 15

By Jay McIntosh -- Furniture Today, October 9, 2005

High Point — Last year threw up as many challenges as it did opportunities for the industry's publicly held retailers, manufacturers and suppliers, and a majority saw their net income decline.

Profits rose for 13 companies on Furniture/Today's annual scorecard and declined for 15.

For some, significant one-time charges were to blame as companies refinanced or downsized. But for others, earnings suffered from the pressures of operating in an environment of flat demand in some product segments, price pressure from imports, and higher costs for some raw materials.

Three quarters of the companies reported rising revenues last year, with only seven posting declines.

In financial measures including return on sales, return on equity, return on assets and stock turns, the median performances declined slightly from the previous year in nearly all segments of the industry. The gross margin performance was more mixed, with manufacturers doing a little better in the most recent year and retailers and suppliers faring a little worse.

The scorecard offers comparisons for companies' most recent fiscal years. Ending dates range from November 2004 (for Sealy, Hooker, Bassett and Rowe) to June 30 or July 2 of this year (Ethan Allen, Flexsteel, Knape & Vogt). One publicly held retailer, Jennifer Convertibles, is excluded because its fiscal year ended in late August but it has not yet reported results.

Among the companies leading the way in revenue and earnings gains last year were the leaders in the hot category of alternative sleep.

Tempur-Pedic rode its visco foam mattress and related sleep products to a 42.9% revenue gain as its profits nearly doubled. It was the industry's top performer in return on sales at 11%, and in return on equity at 35.1%.

Airbed manufacturer and retailer Select Comfort also posted above-average returns as its sales grew 21.6% and earnings rose 16.4%.

The fastest-growing company on this year's scorecard also is one of the youngest, the seven-year-old retailer of contemporary furnishings Design Within Reach. The San Francisco-based company, which sells through stores, a catalog, the Internet and direct sales, continued to roll out stores last year. Its revenue rose 48.6% and earnings more than tripled.

Among the industry's largest companies, results were mixed. Components supplier Leggett & Platt enjoyed another strong year in 2004, with sales and earnings both up in double digits. So did Masco, the plumbing and building products giant whose products include ready-to-assemble furniture. And Williams-Sonoma, the diverse retailer whose units include home furnishings purveyor Pottery Barn, had rising sales and a 21.6% spike in earnings.

For the largest U.S. furniture manufacturer, Furniture Brands International, the world was flat in 2004. Sales grew less than 1% and net earnings slipped 3.2%. The company continued to pursue two of its key strategies, opening more dedicated stores and stepping up its global sourcing of products. It added a net 39 stores last year in its Thomasville, Drexel Heritage, Lane, Broyhill and Henredon brands, and boosted imports to 34% of total sales, up from 26.5% in 2003.

FBI also took a $40 million hit in 2004 from an event that affected many in the industry, the failure of Top 100 retailer Breuners Home Furnishings Corp.

La-Z-Boy also saw modest sales growth last year of 4.9%, but rebounded to a profit from a 2003 loss that was caused largely by a one-time writedown in asset values.

Industry stalwart Ethan Allen said its sales and earnings this fiscal year, ended June 30, were virtually flat with the previous year. The company continued to rank near the top in the industry in returns on sales, equity and assets.

Manufacturer and importer Flexsteel Inds., on the same fiscal calendar as Ethan Allen, saw its revenues rise 2.2%, but earnings tumbled 40.3%. The company said pricing pressure from offshore goods remained "pretty severe" as rising costs for raw materials, including polyester foam, steel and fuel, also hurt the bottom line.

Bedding majors Sealy and Simmons both grew their sales, but various financial transactions sent their bottom lines traveling in different directions.

Sealy went from a profit to a $38.3 million net loss in fiscal 2004 because it incurred big, one-time expenses related to a merger and recapitalization. Earlier this year, Sealy filed a registration statement with the Securities and Exchange Commission saying it planned a public stock offering.

Simmons, however, rebounded to a $24.7 million profit last year from a loss in 2003 stemming mainly from expenses related to its acquisition by affiliates of the Thomas H. Lee equity firm.

Life wasn't easy last year for several retailers.

Pier 1 Imports, which ranked second behind Rooms To Go this year on Furniture/Today's Top 100 U.S. Furniture Stores list, eked out a 1.6% sales increase as same-store sales fell 5.8%. Chairman and CEO Marvin Girouard called it a "challenging year," and said the company was investing in making changes in its merchandising, marketing and store operations strategies.

Sales fell 3.4% for another Top 100 store, The Bombay Company, which lost $12.2 million last year, compared with a $9.9 million profit the previous year. Like their Pier 1 counterparts, Bombay executives said they were continuing to work on significant changes, including enhancing stores and improving systems and distribution networks.

Meanwhile, Havertys' sales rose 5.3%. The Atlanta-based Top 100 chain's earnings declined 10.2%, which it attributed to the expense of closing several small warehouses and replacing them with big distribution centers in Dallas and Lakeland, Fla., a move it said would improve its distribution capabilities and help it expand into new markets.

One of the top-performing manufacturers last year was Stanley Furniture. The case goods and occasional producer and importer's sales climbed 15.3% and its earnings rose 37.2% as everything clicked with its strategy of focusing on quality and quick shipment in its upper-medium price niche, while blending domestic and imported goods.

Fellow Virginia-based manufacturer and retailer Rowe Furniture didn't fare as well. Sales were up 6.4% but the company wrestled with a new enterprise resource planning system. Instead of smoothing the product flow, the system slowed shipments and left Rowe with an inflated backlog at year's end. Earnings declined nearly 60%, although the 2003 figure was inflated by $1.1 million in earnings from discontinued operations and a profit from the sale of its former Mitchell Gold subsidiary.

Furniture/Today's annual scorecard
Dollar amount in thousands
			Revenues			Net income
Company	Fiscal year ended	2004	2003	% change	2004	2003	% change	2004 Equity/total assets
R Revenues 1. Includes credit service charge income of $4.5 million in 2004 and $6.4 million in 2003. 2003 also includes a $1 million after-tax gain, the cumulative effect of an accounting change. 2. Includes a $6.5 million income tax benefit. 3. Includes income tax benefits of $100,000 in 2004 and $1.5 million in 2003. 4. Includes a $551,000 pretax charge for stock-based compensation and a $198,000 pretax charge for facility relocation costs. 5. After preferred dividends of $1.8 million; includes an $852,000 income tax benefit and a $559,000 pretax charge for facility relocation costs. 6. Includes pretax income from a litigation settlement of $30 million in 2004 and $72 million in 2003, pretax charges for goodwill impairment of $168 million in 2004 and $53 million in 2003 and pretax charges for investment impairments of $21 million in 2004 and $19 million in 2003. 2004 also includes a $37 million net loss from discontinued operations and 2003 also includes $16 million in net income from discontinued operations. 7. 2004 is 53 weeks; 2003 is 52 weeks. 8. Includes a $10.3 million pretax restructuring charge, a $2.1 million extraordinary gain and $2 million in net income from discontinued operations. 9. Includes a $10.4 million pretax restructuring charge, an $8.3 million extraordinary charge, the cumulative effect of an accounting change, and $650,000 in net income from discontinued operations. 10. Includes a $624,000 pretax restructuring charge, $133.1 million in pretax recapitalization expense, an $8.5 million income tax benefit and $14.2 million in net royalty income. 11. Includes a $1.8 million pretax restructuring charge and $12.5 million in net royalty income. 12. Includes a $219,000 pretax restructuring and impairment credit. 13. Includes a $12.5 million pretax restructuring and impairment charge. 14. Includes pretax plant closure charges of $3.1 million in 2004 and $1.8 million in 2003, pretax transaction expense of $733,000 in 2004 and $22.4 million in 2003, licensing income of $9.6 million in 2004 and $10.8 million, 2003, and foreign currency translation gains of $113,000 in 2004 and $224,000 in 2003. 15. Includes pretax losses on debt extinguishment of $5.4 million in 2004 and $13.7 million in 2003. 16. 2004 is 52 weeks; 2003 is 53 weeks. 17. Includes a $71,000 pretax charge for store closings and asset impairments. 18. Data from S-1 filed with the SEC on April 11, 2005. 19. Includes an $11.2 million pretax loss on the early extinguishment of debt and a $17 million pretax loss on the redemption of preferred membership units. 20. After $3.1 million in dividends and accretion on redeemable preferred membership units. 21. Includes an $809,022 pretax gain on the sale of facilities. 22. Includes the results of Bradington-Young from its January 2003 acquisition. 23. Includes pretax restructuring and asset impairment charges of $1.6 million in 2004 and $1.5 million in 2003. 24. Includes a $4.1 million pretax restructuring and asset impairment charge, $7.1 million in net income from investments and a $3.9 million pretax gain on the sale of property. 25. Includes a $3.2 million pretax restructuring and asset impairment charge, $5.5 million in net income from investments and a $4.9 million extraordinary charge, the cumulative effect of an accounting change. 26. Includes $177,000 in net earnings from discontinued real estate operations and a $105,000 net loss on contingencies associated with operations discontinued in prior years. 27. Includes a $225,000 pretax charge for retail restructuring and other charges, $1.1 million in income from discontinued operations, a $462,000 net gain on the disposal of discontinued operations and $43,000 in net earnings from discontinued real estate operations. 28. Includes a $3.2 million pretax charge for restructuring, impairment and other charges. 29. Includes a $1.8 million pretax credit for restructuring, impairment and other credits and a $6 million income tax benefit. 30. Includes a $3.7 million income tax benefit. 31. Includes a $1.4 million pretax nonrecurring gain. 32. Includes a $10.4 million pretax restructuring charge, a $5.1 million pretax goodwill impairment charge and a $10.9 million income tax benefit. 33. Includes a $1 million pretax restructuring credit and a $1.7 million pretax charge for the early extinguishment of debt. 34. Includes a $2.3 million pretax charge for impairment and restructuring. 35. Includes an $87,336 pretax gain on interest rate swap, $107,825 in pretax rental income and a $939,606 pretax gain on foreign currency exchange. 36. Includes a $47,783 pretax loss on interest rate swap, $25,440 in pretax rental income, a $1 million pretax gain on foreign currency exchange and a $38,806 income tax benefit.
RETAILERS
Williams-Sonoma	1/30/2005	$3,136,931	$2,754,368	13.9%	$191,234	$157,211	21.6%	54.9%
Pier 1 Imports	2/26/2005	1,897,853	1,868,243^R	1.6	60,457	118,001^R	-48.8	61.8
Cost Plus	1/29/2005	908,560	801,566	13.3	30,221	32,687	-7.5	58.5
Haverty Furniture	12/31/2004	784,162	744,635	5.3	22,754¹	25,331²	-10.2	59.9
The Bombay Company	1/29/2005	576,087	596,435^R	-3.4	(12,205)²	9,866^R	—	64.0
Restoration Hardware	1/29/2005	525,823	438,508^R	19.9	1,704³	(2,518)^3,R	—	35.6
Design Within Reach	1/1/2005	120,598	81,138	48.6	3,744⁴	1,195⁵	213.3	64.3
Medians				13.3%			-7.5%	59.9%
MANUFACTURERS
Masco	12/31/2004	$12,074,000	$10,571,000	14.2%	$893,000⁶	$806,000⁶	10.8%	43.2%
Furniture Brands Intl.	12/31/2004	2,447,430	2,434,130	0.5	91,567	94,573	-3.2	60.3
La-Z-Boy⁷	4/30/2005	2,048,381	1,951,997	4.9	37,185⁸	(5,796)⁹	—	51.4
Sealy	11/28/2004	1,314,020	1,189,860	10.4	(38,283)¹⁰	18,269¹¹	—	-42.8
Ethan Allen	6/30/2005	949,012	955,107	-0.6	79,338¹²	79,478¹³	-0.2	69.1
Simmons	12/25/2004	869,893	806,333	7.9	24,727¹⁴	(41,062)¹⁴	—	20.0
Tempur-Pedic	12/31/2004	684,866	479,135	42.9	75,007¹⁵	37,575¹⁵	99.6	33.4
Select Comfort¹⁶	1/1/2005	557,639	458,489	21.6	31,555	27,102¹⁷	16.4	59.6
Berkline/BenchCraft¹⁸	12/31/2004	499,727	456,171	9.5	(18,831)¹⁹	3,714²⁰	—	-0.2
Flexsteel Inds.	6/30/2005	410,023	401,222	2.2	6,044²¹	10,130	-40.3	62.9
Hooker Furniture²²	11/30/2004	345,944	309,005	12.0	18,204²³	14,710²³	23.8	72.3
Bassett Furniture	11/27/2004	315,654	316,857	-0.4	8,209²⁴	(470)²⁵	—	74.4
Stanley Furniture	12/31/2004	305,815	265,263	15.3	20,789	15,150	37.2	67.4
Rowe Furniture	11/28/2004	295,203	278,373	6.0	1,032²⁶	2,546²⁷	-59.5	40.0
Chromcraft Revington	12/31/2004	172,393	184,228	-6.4	7,668	8,088	-5.2	72.3
Medians				7.9%			5.3%	59.6%
SUPPLIERS
Leggett & Platt	12/31/2004	$5,085,500	$4,388,200	15.9%	$285,400	$205,900	38.6%	55.1%
Foamex International	1/2/2005	1,266,394	1,304,560	-2.9	(150,933)²⁸	(21,489)²⁹	—	-55.5
Quaker Fabric	1/1/2005	289,145	325,337	-11.1	(2,042)³⁰	7,939³¹	—	62.5
Culp	5/1/2005	286,498	318,116	-9.9	(17,852)³²	7,220³³	—	48.7
Knape & Vogt	7/2/2005	157,366	148,941	5.7	3,080³⁴	3,735	-17.5	41.2
CFC International	12/31/2004	82,557	62,788^R	31.5	4,010³⁵	261³⁶	1438.7	44.9
Medians				1.4%			38.6%	46.8%

Return on Assets
Industry median	2004	2003
Retailers	5.0%	5.7%
Manufacturers	5.8%	6.0%
Suppliers	1.3%	3.3%

Return on Assets
	2004	2003
Return on assets = net income divided by total assets
RETAILERS
Williams-Sonoma	11.0%	10.7%
Cost Plus	6.1	7.5
Pier 1 Imports	5.6	11.2
Design Within Reach	5.0	4.7
Haverty Furniture	5.0	5.7
Restoration Hardware	0.6	-1.1
The Bombay Company	-4.3	3.7
Medians	5.0%	5.7%
MANUFACTURERS
Select Comfort	16.5%	17.7%
Ethan Allen	12.6	12.1
Tempur-Pedic	11.7	6.1
Stanley Furniture	11.0	9.2
Hooker Furniture	9.6	8.8
Chromcraft Revington	8.8	9.4
Masco	7.1	6.6
Furniture Brands International	5.8	6.0
Flexsteel Inds.	3.6	6.0
La-Z-Boy	3.6	-0.6
Bassett Furniture	2.8	-0.2
Simmons	1.9	-3.5
Rowe Furniture	0.8	2.0
Sealy	-4.3	1.9
Berkline/BenchCraft	-7.6	1.6
Medians	5.8%	6.0%
SUPPLIERS
Leggett & Platt	6.8%	5.3%
CFC International	5.5	0.4
Knape & Vogt	3.3	3.9
Quaker Fabric	-0.8	2.9
Culp	-10.1	3.7
Foamex International	-23.4	-2.7
Medians	1.3%	3.3%

Return on Equity
Industry median	2004	2003
Retailers	8.3%	12.1%
Manufacturers	12.2%	12.7%
Suppliers	8.1%	7.0%

Return on Equity
	2004	2003
Return on equity = net income divided by equity
RETAILERS
Williams-Sonoma	20.0%	19.5%
Cost Plus	10.4	12.4
Pier 1 Imports	9.1	17.3
Haverty Furniture	8.3	10.0
Design Within Reach	7.8	12.1
Restoration Hardware	1.7	-2.6
The Bombay Company	-6.7	5.2
Medians	8.3%	12.1%
MANUFACTURERS
Tempur-Pedic	35.1%	30.6%
Select Comfort	27.6	29.4
Ethan Allen	18.3	17.4
Masco	16.5	14.8
Stanley Furniture	16.3	14.8
Hooker Furniture	13.3	12.7
Chromcraft Revington	12.2	15.0
Furniture Brands International	9.6	9.8
Simmons	9.5	-14.7
La-Z-Boy	7.1	-1.1
Flexsteel Inds.	5.8	10.0
Bassett Furniture	3.7	-0.2
Rowe Furniture	1.9	4.9
Sealy	—	-24.0
Berkline/BenchCraft	—	14.4
Medians	12.2%	12.7%
SUPPLIERS
CFC International	12.3%	0.9%
Leggett & Platt	12.3	9.7
Knape & Vogt	8.1	10.1
Quaker Fabric	-1.2	4.7
Culp	-20.8	7.0
Foamex International	—	—
Medians	8.1%	7.0%

Return on Sales
Industry median	2004	2003
Retailers	3.1%	3.4%
Manufacturers	3.7%	3.9%
Suppliers	0.7%	2.4%

Return on Sales
	2004	2003
Return on sales = net income divided by sales
RETAILERS
Williams-Sonoma	6.1%	5.7%
Cost Plus	3.3	4.1
Pier 1 Imports	3.2	6.3
Design Within Reach	3.1	1.5
Haverty Furniture	2.9	3.4
Restoration Hardware	0.3	-0.6
The Bombay Company	-2.1	1.7
Medians	3.1%	3.4%
MANUFACTURERS
Tempur-Pedic	11.0%	7.8%
Ethan Allen	8.4	8.3
Masco	7.4	7.6
Stanley Furniture	6.8	5.7
Select Comfort	5.7	5.9
Hooker Furniture	5.3	4.8
Chromcraft Revington	4.4	4.4
Furniture Brands International	3.7	3.9
Simmons	2.8	-5.1
Bassett Furniture	2.6	-0.1
La-Z-Boy	1.8	-0.3
Flexsteel Inds.	1.5	2.5
Rowe Furniture	0.3	0.9
Sealy	-2.9	1.5
Berkline/BenchCraft	-3.8	0.8
Medians	3.7%	3.9%
SUPPLIERS
Leggett & Platt	5.6%	4.7%
CFC International	4.9	0.4
Knape & Vogt	2.0	2.5
Quaker Fabric	-0.7	2.4
Culp	-6.2	2.3
Foamex International	-11.9	-1.6
Medians	0.7%	2.4%

Stock Turns
Industry median	2004	2003
Retailers	3.1x	3.0x
Manufacturers	5.0x	5.5x
Suppliers	5.3x	5.6x

Stock Turns
	2004	2003
Stock turns = cost of goods sold divided by ending inventory
RETAILERS
Williams-Sonoma	4.1x	4.1x
Haverty Furniture	3.5	3.6
Design Within Reach	3.1	3.3
Pier 1 Imports	3.1	2.9
The Bombay Company	3.0	3.0
Restoration Hardware	2.5	3.0
Cost Plus	2.4	2.5
Medians	3.1x	3.0x
MANUFACTURERS
Sealy	14.3x	14.1x
Simmons	14.2	13.3
Select Comfort	10.6	12.1
Masco	7.4	7.2
La-Z-Boy	6.0	6.0
Berkline/BenchCraft	5.8	7.0
Rowe Furniture	5.1	5.5
Bassett Furniture	5.0	6.4
Tempur-Pedic	4.9	3.8
Flexsteel Inds.	4.8	4.6
Furniture Brands International	4.0	4.3
Chromcraft Revington	3.9	4.7
Hooker Furniture	3.6	5.3
Stanley Furniture	3.1	3.7
Ethan Allen	2.6	2.6
Medians	5.0x	5.5x
SUPPLIERS
Foamex International	11.2x	12.1x
Leggett & Platt	5.9	5.8
Quaker Fabric	5.4	5.8
Knape & Vogt	5.2	4.9
Culp	5.2	5.3
CFC International	3.0	3.3
Medians	5.3x	5.6x

Gross Margin
Industry median	2004	2003
Retailers	38.3%	40.3%
Manufacturers	27.6%	27.0%
Suppliers	18.2%	19.5%

Gross Margin
	2004	2003
Gross Margin = gross profit divided by net sales
RETAILERS
Haverty Furniture	50.7%	49.1%
Design Within Reach	46.0	46.6
Williams-Sonoma	40.5	40.3
Pier 1 Imports	38.3	41.8
Cost Plus	34.1	35.1
Restoration Hardware	31.6	30.4
The Bombay Company	25.6	29.3
Medians	38.3%	40.3
MANUFACTURERS
Select Comfort	61.1%	62.7%
Tempur-Pedic	52.7	53.3
Ethan Allen	48.6	48.3
Simmons	45.7	48.4
Sealy	43.7	41.6
Rowe Furniture	35.1	36.0
Masco	30.8	30.7
Hooker Furniture	27.6	26.6
Furniture Brands International	27.2	27.0
Berkline/BenchCraft	26.3	26.5
Bassett Furniture	25.7	25.9
Stanley Furniture	24.7	23.3
La-Z-Boy	23.2	22.7
Chromcraft Revington	22.9	21.0
Flexsteel Inds.	18.7	20.7
Medians	27.6%	27.0%
SUPPLIERS
CFC International	34.6%	32.4%
Knape & Vogt	19.1	20.6
Quaker Fabric	18.3	21.6
Leggett & Platt	18.0	17.6
Foamex International	11.2	11.0
Culp	9.1	18.3
Medians	18.2%	19.5

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