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Is furniture retailers’ share price weakness a Christmas bargain for 2014?

In the midst of a rising housing market, household goods and furniture companies will benefit from the upgrades and redecorations even before the slew of new homes now under construction are completed. Investors are also sprucing up their portfolios with home builder, building materials, and home goods stocks.

Fantastic Holdings (ASX: FAN) announced last week in its trading update of the half year ending December 29 that the second quarter had positive signs in sales, but due to the lower first-quarter sales, the half year is expected to have an operating NPAT of $3 million-$5 million, well down from the $13.5 million of previous corresponding period in 2012.

The company didn’t offer guidance for the full year, saying it was difficult to gauge the current retailing environment’s impact on sales.

In 2013, the $13.5 million in NPAT for the year was down from 2012’s $20.9 million. In its AGM in October it cited upcoming difficulties such as increasing competition in key markets, lower Aussie exchange rates which will reduce purchasing power for imported furniture, and potentially higher unemployment in the near term that may hamper consumer spending.

The company operates such furniture brands as Fantastic Furniture, Dare Gallery, Plush, Le Cornu and Original Mattress Factory. Dare Gallery and Le Cornu saw good growth in the past year, but its core brand Fantastic Furniture and Plush saw a decrease in like-for-like sales.

Its share price briefly slipped a little bit under $2 on the day of the announcement, but has since recovered to $2.09. Other furniture retailers like Nick Scali (ASX: NCK) have been rising in share price since mid-year within the same selling environment. It did fall about 10% from around $3 over two days last week, so perhaps the market got spooked about furniture in general. It held up at $2.75.

Harvey Norman (ASX: HVN) is settling at $3.10 after hitting a new yearly high of $3.42 back on November 5. The company said that it hasn’t detected any great rise in consumer spending since the Federal election, so it will just stay the course and ready itself for the holiday sales season.

It also added that it could develop some of the many properties it owns for housing to augment retail sales, if it chose to.

Foolish takeaway

Just like a present under the Christmas tree, retailers will just have to wait to see what they get come Christmas and through to the New Year. It is always a tense time since it is the major shopping season of the year, and retailers have to order what they expect they can sell weeks and months in advance to have it all ready on the shelves for customers.

Buyers and investors alike both love getting something on sale, so if the growing housing market gains may be still a little down the track, a little share price weakness now may be a buying opportunity.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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