Pull Up a Chair

VIRGINIA BUSINESS

TAKING STOCK

PULL UP A CHAIR

Tired of hearing about tech stocks? It's comforting to lean back and focus on something other than the Internet -- something as solid and tangible as the chair you're sitting in.

But sitting down doesn't mean slowing down. Virginia-based furniture companies are on the move. Strong housing sales and consumer confidence has buyers rethinking once-delayed purchases of dining room sets, matching furniture for the home office and a cushy couch for the family room.

That's why analysts are pegging Stanley Furniture Inc. (Nasdaq, STLY: $20.17) with a strong buy rating. The Stanleytown residential wood furniture company reported 1998 sales of $247.4 million, up 16.8 percent from the previous year. In late March the company announced that it was expanding with a 300,000-square-foot facility on a 20-acre site in Henry County.

The 75-year-old company plans to capitalize on the growing market for quality home office furniture. With growth in telecommuting and home-based businesses, having a nice office is no longer only for the top brass. Besides, did you ever hear anyone talking about someday having his dream cubicle? Stanley expects to invest $15 million and add 300 jobs at the new plant, which at capacity could represent $50 million to $60 million in sales.

McLean-based Rowe Furniture Co. (NYSE, ROW: $10.50), also wins a buy rating and has expansion plans. The upholstered-furniture manufacturer plans to open a new, $15 million facility in Montgomery County. Sales in 1998 stood at $193.4 million, up 34.2 percent over 1997. Earnings were up 78 percent, making it one of the year's top performers.

Its specialty is manufacturing and selling midpriced upholstered and leather sofas, love seats and chairs. It also has retail operations, a growing trend in the industry, with 14 Home Elements stores -- formerly Rowe ShowPlace. Those operations could triple, however, if Rowe completes its pending acquisition of the Storehouse chain. That buy could ramp up Rowe's retail presence with an additional 43 stores.

Another plus for the furniture manufacturer is its late 1998 acquisition of the furniture maker Mitchell Gold. That company stocks the bulk of the furniture products in such fast-growing retail chains as Pottery Barn, Crate and Barrel and Restoration Hardware.

Pulaski Furniture Inc. (Nasdaq, PLFC: $19.50) didn't post a double-digit sales increase, but it still had a healthy 1998, with sales of $172.4 million -- an increase of 8.5 percent over the previous year. The Pulaski company makes traditional, midpriced bedroom and occasional furniture such as curio cabinets and bookcases.

Bassett Furniture Industries (Nasdaq, BSET: $21.75) is working on a turnaround. The company hasn't fared as well as its Virginia competitors, but has been restructuring to improve its bottom line. It sold underperforming lines, such as its mattress division, and is beefing up its retail operations with company-owned stores.

Those changes may be showing some results. Sales were down 11 percent in 1998, to $397.6 million. But the decline came from getting rid of operations that didn't meet earnings expectations. The company reported net income of $15.7 million in 1998, compared with a loss of $19.6 million the previous year.

In 1998, the company announced plans to invest $8 million and create 100 new jobs in a plant that will make tables. In January the company announced a 51 percent increase in operating income for fiscal 1998, which reports said was "due mainly to improved furniture manufacturing operations."

When looking at the industry as a whole, however, here's something else to consider: Furniture companies are doing well, but it seems no one is paying attention. Institutional investors are trying to beat an index or chase high-flying stocks. So furniture companies' stocks don't reflect their growth potential. They're cheap because they're being overlooked.

The result is leveraged buyouts and companies taking themselves private, as was the case with Fairfax-based Cort Business Services Corp. (NYSE, CBZ: $22.75), a furniture-rental company. Company executives are buying the company for $453 million. Despite strong performance, the stock is being bullied by a market wowed with tech stocks. Many small and midsize companies are having a hard time raising cash needed to expand, though there's strong demand for their products and services.

While the fundamentals of companies like Stanley are strong, the stocks haven't performed to expectations. Perhaps they should add words like "Internet" or ".com" to their names.

Leigh Anne Larance
Senior Editor