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Industry Performance.

Though sales in home furnishings retailing continued to outpace the retail economy as a whole in the fourth quarter of this year, profit growth for the public retailers in this sector generally suffered. The result was lower profit margins for most retailers and an actual decline in dollar profits compared to fourth quarter last year for the furniture, home decor and non-store segments.

What happened? High growth earlier in the year and Farmers' Almanac forecasts of another bad winter led retailers to build inventory for the Christmas season. Well, you know the rest: the fourth quarter was hit by a blizzard only of markdowns.

Furniture and Home Decor

Reversing gains from the first three quarters of 1994, profits for the furniture and home decor segment declined during the fourth quarter compared to last year. Pier 1 Imports, Levitz Furniture and The Bombay Company were responsible for this result posting decreases of 95%, 46% and 19%, respectively.

These declines caused the segment's composite net profit margin to drop from 5.4% to 4.3%. Bombay took the largest hit, registering a decline in net margin from 13.3% to 8.5%. According to management, this drop reflects expenses related to closing the Alex & Ivy division. Meanwhile, two companies from this segment managed to increase their profit margins: Rhodes and Haverty Furniture.

Consumer Electronics

Once again, the consumer electronics segment led the pack in terms of sales and profit growth. Sales jumped 39%, while profit increased 28% producing a small decline in profit margin from 3.1% to 2.9%. Overall, every consumer electronics firm generated a double-digit growth rate and only one company's rate of increase was below 20%: Sound Advice.

The three biggest operators of superstores generated three of the tour largest increases in sales. Circuit City, Best Buy and CompUSA registered growth rates of 38%, 67% and 42%, respectively. Ultimate Electronics, another operator of superstores, generated the largest growth rate, an astronomical 87%.

Home

Improvement

Centers

Only three companies in the home improvement segment were able to generate solid increases in both sales and profit: Home Depot, Wickes Lumber and Lowe's. Each company posted quarterly sales and profit increases at or above 30%, compared to last year's fourth quarter. In addition, these three retailers were the only companies in the segment to post profit margins above 3%.

Three other companies generated double-digit sales increases: D.I.Y. Home Warehouse, Orchard Supply Hardware and Hechinger. However, Hechinger and Orchard Supply Hardware registered a net loss during the quarter. Eagle Hardware & Garden and Grossman's also generated losses for the quarter. Eagle Hardware & Garden's loss items from their decision to exit die Canadian market.

Department Stores

Only two department store chains generated less profit during the fourth quarter of 1994 compared to 1993. However, these two companies are the segment's second and fourth largest overall: J.C. Penney and Federated. Federated had substantial losses because of expenses from the acquisition of Macy.

Three smaller players in the segment generated the largest increases in profit during the quarter: Gottschalks, Jacobson and Carson Pirie & Scott. Not surprisingly, the same three companies also increased their profit margin the most: Gottschalks, by 2.2% to 6.3%; Jacobson, by 2.2% to 6.5%; and Carson Pirie & Scott, by 3.1% to 10.2%. Besides Carson Pirie & Scott, the only other companies which registered a profit margin in double-digits were Crowley, 10.3% and May Co., 10.2%.

Discount Stores

Only one discounter had a strong fourth quarter: Wal-Mart. The country's largest retailer increased sales 20% and profits 19%. Besides Wal-Mart, the only other retailers to register a double-digit gain in sales were Pamida and Dayton Hudson. In contrast, Kmart reported a sales decrease of 5% and a profit margin of only 1.4%. Kmart's percentage change in profits could not be calculated because of a net loss last year, emanating from restructuring expenses associated with spinning off their specialty businesses. All other discount stores registered either a small increase in profits or a sizeable decrease.

Non-Store

Retailers

The non-store retailing segment as a whole generated disappointing profit results. The segment's profit margin declined from 4.8% last year to 2.4% in 1994. However, this result was primarily induced by the three largest companies: Spiegel, Fingerhut and Lands' End. Spiegel's margin plunged from 5.4% last year to 0.9%, Fingerhut's dropped from 6.4% to 1.8% and Lands' End fell from 7.7% to 6.3%. Excluding these three companies, the segment's profit margin would have increased 0.9%, from 2.1% to 3.0%. Overall, Lillian Vernon generated the segment's largest profit margin, 10.5%.
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Title Annotation:Home Watch: a Quarterly Retail Report by Management Horizons; home furnishings industry
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Date:Apr 10, 1995
Words:773
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