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Tickers in this Article: LEG, LZB, PIR, ETH, HVT, FBN, NTZ, HOFT, STLY
In the case of Ethan Allen (NYSE:ETH) and the rest of the furniture industry, the past couple of years haven't been good ones. A lot of red ink has been shed, and more is likely to follow. The question to answer then is whether value exists in this furniture heap.

IN PICTURES: 6 Major Credit Card Mistakes 5-Year Returns: December 31, 2004 to December 31, 2009

Company
Market Cap
Return
P/S
P/B
Leggatt & Platt (NYSE:LEG)
$3.0 billion
-11.3%
1.0
1.9
La-Z-Boy (NYSE:LZB)
$585.0 million
-29.0%
0.5
1.8
Pier 1 (NYSE:PIR)
$581.4 million
-72.5%
0.4
2.2
Ethan Allen (NYSE:ETH)
$436.9 million
-61.9%
0.7
1.5
Haverty Furniture (NYSE:HVT)
$262.6 million
-19.4%
0.4
1.1
Furniture Brands International (NYSE:FBN)
$239.1 million
-75.4%
0.2
0.8
Natuzzi S.p.A (NYSE:NTZ)
$200.1 million
-69.9%
0.3
0.4
Hooker Furniture (Nasdaq:HOFT)
$134.6 million
-38.8%
0.7
1.1
Stanley Furniture (Nasdaq:STLY)
$103.5 million
-50.9%
0.6
1.1





S&P 500

-8.0%
1.0
2.1
A Bloodbath
The table above says all that needs to be said about the furniture business. Not too many consumers are buying $2,000 sofas, and it shows in the financial reports. Ethan Allen, for example, has generated cumulative operating profits of $277 million in the last four years on revenues of $3.73 billion. That's an operating margin of 7.4%. While not terrible, it isn't flattering, when compared to its 13.4% operating margin, just four years ago in fiscal 2006.

Further, in the trailing twelve months, Ethan Allen lost $101 million on $605 million in sales. Even if you take out unusual expenses and one-time charges, it still lost money. (Find out where to turn when looking to invest in a tumultuous market. Read Industries That Thrive On Recession.)

Not Like the Others
The group of companies listed above came from a chart in Ethan Allen's 2009 annual report, showing how its stock performed between 2004-2009 against both its peer group and the S&P 500. Bassett Furniture (Nasdaq:BSET) and Chromcraft Revington (Amex:CRC) were removed because both companies market caps are below $100 million, and replaced by Hooker Furniture and Stanley Furniture.

Of all the companies on the list, the largest is Leggett & Platt, which happens to be a maker of components that go into sofa, chair and bed recliners. While it has a seen slight sales slide in recent years, it's still managing to make money, a prime reason why its stock has only declined 11.3% in the past five years, which is on par with the S&P 500. I've always liked companies that supply parts, as opposed to making the product. When an industry gets hit, it seems the top suppliers are sometimes better able to ride out the storm. Any analysis of home furnishing stocks should begin with Leggett & Platt, whose furnishing components account for 50% of its sales and earnings before interest and taxes.

The Bottom Line
If you're a conservative investor, Leggett & Platt is your best bet, given its healthy financial condition, strong free cash flow and 5% yield. If you're a more adventurous contrarian, have a look at Ethan Allen which has stock that has lost 62% of its value in the past five years, but is still generating positive free cash flow. (For more related trading, review 10 Reasons Why Moving Might Not Make You Richer.)

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