14 March 2010

Furniture Orders Bode Well For Housing, Economy

The Wall Street Journal

Strong year-to-date orders at furniture companies Ethan Allen Interiors Inc. (ETH) and Haverty Furniture Cos. (HVT) offer the latest evidence of a turnaround in the home sector and suggest consumers are ready to make bigger purchases again.

Furniture companies and their counterparts, home-improvement retailers, had seen sales slump during the recession as customers cut back on purchases of big items. But as the economy begins to recover from its trough, people are making the purchases they had put off for the last couple of years.

The news from Ethan Allen and Haverty this week reinforces everything the sector has seen in the last few months, as furniture sales picked up just after Christmas and big-ticket home projects increased in January when home-improvement retailers started seeing increases in estimates for kitchen and bath projects, Craig Johnson, president of research firm Customer Growth Partners, said in an interview with Dow Jones.

Housing market turnover, which is starting to pick up, is driving increased sales at furniture and home remodeling companies, he said. People generally spruce up their homes either when they're about to put them on the market or when they've just moved into a new house.

General market reaction to last week's January existing home sales data from the National Association of Realtors, which showed sales fell 7.2% from a month earlier, has been negative, with analysts saying the data raises concerns about the strength of the housing market recovery. But Johnson said to get a clear picture, one has to look at the comparison to year-ago numbers, which aren't seasonally adjusted. Total existing home sales were 12% above a year earlier in January.

Ethan Allen Interiors Inc. (ETH) said Wednesday written sales, or orders, for the two months ended Feb. 28 rose 25% from a year earlier, driven by increased store traffic. Chairman and Chief Executive Farooq Kathwari said the company is optimistic about its results for the quarter ending in June--when most of those written sales will be delivered and reported as sales--though it remains cautious.

Ethan Allen's news comes just two days after another furniture company, Haverty Furniture Cos. (HVT) said total written business in the current quarter to date is up about 8% despite harsh weather in some of its key markets. The company also posted much better-than-expected fourth-quarter earnings.

Meanwhile, last week, world's biggest home improvement chain Home Depot Inc. (HD) reported stronger-than-expected sales of some big-ticket items, such as kitchen appliances, water heaters and windows. Lowe's Cos. (LOW), the second-biggest chain, said sales tied to bigger-ticket projects improved from the third quarter, though they remained lower than a year earlier. The companies were able to use promotions to ignite demand for big-ticket items like water heaters and roaster ovens, which had slumped in recent years.

That the spending on home improvement and furnishings is improving despite 10% unemployment shows people with full-time jobs are starting to spend again, and since consumer spending makes up 70% of the economy and retail accounts for 45% of consumer spending, that has implications for the broader economy as well, Johnson, of Customer Growth, said.

Wall Street Strategies analyst Brian Sozzi said the strength in furniture and home improvement segments is definitely a sign of pent-up demand, but companies also have to have the right product. Ethan Allen's name is synonymous with quality, he said, so when the company discounts, customers are interested. La-Z-Boy Inc. (LZB) has focused on its mid-priced niche and has seen good results, but a company like Furniture Brands International Inc. (FBN) has much lower prices but hasn't been doing well no matter what it's done with its prices, he said.

The furniture sector has been in the doldrums for about five years, and for 2009, it was off 20% from its peak in the fourth quarter of 2005, Johnson said. As confidence and the housing market recover, he said, the snap back in the furniture sector will likely be among the strongest because it will be coming off the deepest dip.

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