Furniture sales grew 8.3 percent last month from a yearearlier, following the largest increase since July 2000 inJanuary, according to Census Bureau data. Meanwhile, existingsingle-family homes sold at an annual rate of 4.1 million inJanuary, the most in almost two years, based on data from theNational Association of Realtors.
Demand “appears to be rebounding” as Americans regainconfidence in the economy, said Ken Smith, managing partner ofaccounting firm SmithLeonard PLLC. “If consumers are morecomfortable with their job security, it makes them a little morewilling to spend.”
The unemployment rate held at 8.3 percent in February, athree-year low, while the economy added 227,000 jobs, the thirdconsecutive month of gains more than 200,000, the Bureau ofLabor Statistics said March 9.
“Labor-market conditions have improved” since January,the Federal Reserve said yesterday in a statement following itsMarch 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, thefirst positive number in a year, according to data from theConference Board, a New York research group. Consumer sentiment,measured by the Bloomberg Consumer Comfort Index, rose to afour-year high in the week ended March 4.
Confidence ‘Drives the Industry’
“Consumer confidence really is the major short-termvariable that drives the industry,” said Budd Bugatch, ananalyst in St. Petersburg, Florida, at Raymond James &Associates Inc.About six months after moving, homeowners buy furnishingsto fill their residences, said Bradley Thomas, an analyst in NewYork with Keybanc Capital Markets Inc. Housing turnover is oneof the “most important” criteria affecting furniture sales, soit “makes sense these purchases move together,” he said.
An empty house creates the most immediate demand for suchpurchases, said Mike Englund, chief economist at Boulder,Colorado-based forecaster Action Economics. The market forsingle-family homes appears to have bottomed and has beenrebounding since mid-2011, as starts under construction rose to241,000 in January from 236,000 the prior month, he said, citingCensus data.
While the Fed echoed the optimism in its Feb. 29 Beige Bookreport, saying residential real estate “improved somewhat inmost districts,” the market “remains depressed,” it saidyesterday.
Rising Shares
As Americans shop for new living-room furniture, shares of La-Z-Boy Inc. (LZB) 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 andimports wood furniture, are up 53 percent.New orders for upholstered seating and case goods --products made of wood and other materials, such as bedroom anddining-room furniture -- rose 15 percent in December from a yearearlier, according to a survey conducted by SmithLeonard. Thismarked four consecutive months of double-digit increases, theHigh 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 aFeb. 1 conference call. The Stanleytown, Virginia-based companyis forecasting sales growth in the “single-digit range” thisyear, he said; net sales fell 24 percent in 2011 from a yearearlier.
Reviving Market
Furniture purchases declined “both by choice and bynecessity” after the housing bubble burst in 2007, saidLawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc. (FII) who helps oversee $369.7 billion. Asthe market revives, these stocks have become more attractive toinvestors, even if companies may see a lagged spike in revenue,he said.That’s starting to show up in La-Z-Boy’s upholsterybusiness, as sales rose about 11 percent in the three monthsended Jan. 28 from a year earlier, the Monroe, Michigan-basedcompany said Feb. 21. The U.S. expansion is benefiting the makerof reclining chairs and sofas because this furniture usually isin the most-public areas of homes, Bugatch said.
“Consumers tend to redecorate those rooms first as we comeout of an economic malaise,” said Bugatch, who maintains a“strong buy” recommendation on La-Z-Boy.
Pent-Up Demand
Stronger sales also are driven by pent-up demand fromconsumers fixing up homes they’ve been unable to move out of forthe past five to six years, Englund said. While spending onfurniture fell 1.2 percent to $7.9 billion in February from $8billion the prior month, the January total was the highest sinceAugust 2008, Census data show.The replacement market is the focus for Atlanta-basedHaverty Furniture Companies Inc., as consumers look to upgradeworn-out items in the family room and entertainment areas,President and Chief Executive Officer Clarence Smith said on aFeb. 28 conference call. Customers are “more willing to finallyspend some money.”
Even as confidence rebounds from “spectacularly low”levels, rising gasoline prices may dissuade consumers fromexpensive discretionary purchases, Englund said. The averagegallon of regular unleaded has risen about 19 percent to $3.81 (3AGSREG)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 beimproving, SmithLeonard’s most-recent survey was conductedbefore prices at the pump “kept going up,” Smith said. If thiscontinues, shares of La-Z-Boy and Ethan Allen Interiors Inc. (ETH) --which “basically doubled” since October -- “may take abreather,” Thomas said.
‘Hope Trade’
La-Z-Boy closed at a two-year high of $14.99 in New Yorkyesterday. Ethan Allen, the home-furnishings retailer based inDanbury, Connecticut, closed at a nearly four-year high of$27.80. These stocks represent “a bit of a hope trade” that ahousing rebound will boost sales, said Bugatch, who has a“market perform” recommendation on Ethan Allen. Signs ofstabilization in the economy will “be a boon, but we don’t knowfor how long.”Competition from lower-priced goods made in China alsothreatens the industry, though consolidation has made it “muchleaner and more efficient,” Creatura said. Upholsteredfurniture -- which represents almost 80 percent of La-Z-Boy’srevenue -- makes some companies “more insulated” because theseproducts require customization that lends itself to domesticassembly, and wear-and-tear results in more frequent replacementdemand than for case goods, Thomas said.
Ethan Allen is opening design centers where shoppers canwork with professionals to plan room layouts. As traffic andconsumer attitudes improve, people are “willing to invest” intheir residences again, Chief Executive Officer Farooq Kathwarisaid in a Feb. 28 interview with Mark Crumpton on BloombergTelevision’s “Bottom Line.”
“With all the problems of the world, the home has becomesomewhat of a haven” Kathwari said.
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