2/25/2008

Furniture Brands Shares Get Off The Couch
By Brian Sozzi

In the field of equity analysis there is nothing more exciting or self-rewarding than delivering spot on investment recommendations to clients.  On February 21, we were presented with such a joyous occasion as news surfaced that Furniture Brands International (ticker symbol: FBN) received a buyout offer from Sun Capital Securities Group LLC.  The firm, which amassed a 9.45% stake in Furniture Brands last September, issued a letter to the Board of Directors to signal its intent to purchase the furniture manufacturer for cash consideration at a “substantial premium” to its latest closing price of $10.18 and 30-day moving average of $8.95.  On January 30, we upgraded our rating on the stock; making a compelling case the share price did not fully reflect fair value. 

For long time followers of Furniture Brands, we have been front and center in watching its struggles over the years.  Under former CEO (and now Chairman) Mickey Holliman, Furniture Brands was extremely sloth like in adapting to changing industry conditions and competitive threats.  This lack of execution led to the entrance of Mr. Scozzafava in 2007 as CEO, who has years of experience in the consumer products industry.  On his watch, Furniture Brands has closed a significant number of underperforming retail stores, slashed operating expenses, fine tuned marketing messages, and enhanced the supply chain.  These alterations to the company’s fundamental approach to operating appear to be gaining hold, and served as writing on the wall that management was at least open to a sale.

Many hurdles remain to completing a transaction, and management has not openly expressed a desire to sell out (in fact, it refuted the overture on February 22), but the decision should be easy in our opinion.  The company’s turnaround efforts need time and capital to work to the fullest extent possible, a luxury that is not afforded a publicly traded enterprise. 

Written by Brian Sozzi, a Research Analyst for Wall Street Strategies (www.wstreet.com) specializing in the apparel/hardline goods sectors of the retail industry.