||Jobs Recovery Revives U.S. Furniture Sales
More Americans are stretching out on new sofas as they settle into recently purchased homes, amid an improving outlook for employment.
Furniture sales grew 8.3 percent last month from a year earlier, following the largest increase since July 2000 in January, according to Census Bureau data. Meanwhile, existing single-family homes sold at an annual rate of 4.1 million in January, the most in almost two years, based on data from the National Association of Realtors.
Demand "appears to be rebounding" as Americans regain confidence in the economy, said Ken Smith, managing partner of accounting firm SmithLeonard PLLC. "If consumers are more comfortable with their job security, it makes them a little more willing to spend."
The unemployment rate held at 8.3 percent in February, a three-year low, while the economy added 227,000 jobs, the third consecutive month of gains more than 200,000, the Bureau of Labor Statistics said March 9.
"Labor-market conditions have improved" since January, the Federal Reserve said in a statement following its March meeting.
The share of Americans who say jobs will be "plentiful" in six months minus the share who say there will be "fewer" opportunities rose to 1.8 percentage points in February, the first positive number in a year, according to data from the Conference Board, a New York research group. Consumer sentiment, measured by the Bloomberg Consumer Comfort Index, rose to a four-year high in the week ended March 4.
Confidence 'Drives the Industry'
"Consumer confidence really is the major short-term variable that drives the (furniture) industry," said Budd Bugatch, an analyst in St. Petersburg, Florida, at Raymond James & Associates Inc.
About six months after moving, homeowners buy furnishings to fill their residences, said Bradley Thomas, an analyst in New York with Keybanc Capital Markets Inc. Housing turnover is one of the "most important" criteria affecting furniture sales, so it "makes sense these purchases move together," he said.
An empty house creates the most immediate demand for such purchases, said Mike Englund, chief economist at Boulder, Colorado-based forecaster Action Economics. The market for single-family homes appears to have bottomed and has been rebounding since mid-2011, as starts under construction rose to 241,000 in January from 236,000 the prior month, he said, citing Census data.
As Americans shop for new living-room furniture, shares of La-Z-Boy Inc. have risen 117 percent since Oct. 3, 2011, compared with a 36 percent gain for the Russell 2000 Index. Shares of Stanley Furniture Co., which designs, manufactures and imports wood furniture, are up 53 percent.
New orders for upholstered seating and case goods -- products made of wood and other materials, such as bedroom and dining-room furniture -- rose 15 percent in December from a year earlier, according to a survey conducted by SmithLeonard. This marked four consecutive months of double-digit increases, the High Point, North Carolina, company said last month.
Orders for Stanley's namesake and Young America lines "continuously got better" during the quarter ended Dec. 31, President and Chief Executive Officer Glenn Prillaman said on a Feb. 1 conference call. The Stanleytown, Virginia-based company is forecasting sales growth in the "single-digit range" this year, he said; net sales fell 24 percent in 2011 from a year earlier.
Furniture purchases declined "both by choice and by necessity" after the housing bubble burst in 2007, said Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc. who helps oversee $369.7 billion. As the market revives, these stocks have become more attractive to investors, even if companies may see a lagged spike in revenue, he said.
That's starting to show up in La-Z-Boy's upholstery business, as sales rose about 11 percent in the three months ended Jan. 28 from a year earlier, the Monroe, Michigan-based company said Feb. 21. The U.S. expansion is benefiting the maker of reclining chairs and sofas because this furniture usually is in the most-public areas of homes, Bugatch said.
"Consumers tend to redecorate those rooms first as we come out of an economic malaise," said Bugatch, who maintains a "strong buy" recommendation on La-Z-Boy.
Stronger sales also are driven by pent-up demand from consumers fixing up homes they've been unable to move out of for the past five to six years, Englund said. While spending on furniture fell 1.2 percent to $7.9 billion in February from $8 billion the prior month, the January total was the highest since August 2008, Census data show.
The replacement market is the focus for Atlanta-based Haverty Furniture Companies Inc., as consumers look to upgrade worn-out items in the family room and entertainment areas, President and Chief Executive Officer Clarence Smith said on a Feb. 28 conference call. Customers are "more willing to finally spend some money."
Even as confidence rebounds from "spectacularly low" levels, rising gasoline prices may dissuade consumers from expensive discretionary purchases, Englund said. The average gallon of regular unleaded has risen about 19 percent to $3.81 since reaching an almost one-year low of $3.21 in December, according to Heathrow, Florida-based AAA, the largest U.S. motoring organization.
While orders for residential furniture appear to be improving, SmithLeonard's most-recent survey was conducted before prices at the pump "kept going up," Smith said. If this continues, shares of La-Z-Boy and Ethan Allen Interiors Inc. -- which "basically doubled" since October -- "may take a breather," Thomas said.
La-Z-Boy closed at a two-year high of $14.99 in New York on Tuesday. Ethan Allen, the home-furnishings retailer based in Danbury, Connecticut, closed at a nearly four-year high of $27.80. These stocks represent "a bit of a hope trade" that a housing rebound will boost sales, said Bugatch, who has a "market perform" recommendation on Ethan Allen. Signs of stabilization in the economy will "be a boon, but we don't know for how long."
Competition from lower-priced goods made in China also threatens the industry, though consolidation has made it "much leaner and more efficient," Creatura said. Upholstered furniture -- which represents almost 80 percent of La-Z-Boy's revenue -- makes some companies "more insulated" because these products require customization that lends itself to domestic assembly, and wear-and-tear results in more frequent replacement demand than for case goods, Thomas said.
Ethan Allen is opening design centers where shoppers can work with professionals to plan room layouts. As traffic and consumer attitudes improve, people are "willing to invest" in their residences again, Chief Executive Officer Farooq Kathwari said in a Feb. 28 interview with Mark Crumpton on Bloomberg Television's "Bottom Line."
"With all the problems of the world, the home has become somewhat of a haven," Kathwari said.
(Source: Bloomberg, 03/14/12)
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