Furniture Brands Executives Wager on a Turnaround

Furniture Brands International Inc. has been racked with problems in recent years, but a new cluster of buying by top executives may signal they believe the worst is in the past for the company and its stock.

The St. Louis company has posted earnings from continuing operations in just three of the previous 14 quarters, and then only barely. The company's pension is underfunded, there are onerous leases on laggard stores that it can't leave for years, and its brands seem to be drawing consumer interest only because of discounts that hinder any attempts to reverse its losses. None of the Wall Street analysts who follow it recommends buying the stock.

Yet company Chairman and Chief Executive Ralph Scozzafava bought shares earlier this month, just days after another brutal results report drove shares lower, and he was joined in buying by its chief financial officer, a director and four other top executives that should know better than anyone what Furniture Brands' future holds.

The other executives are its general counsel, its head of human resources, the executive in charge of its global supply chain and the president of its designer brands. Each of them must believe the stock is headed higher than the average prices of $3.87 to $4.53 a share they paid.

Furniture Brands spokesman John Hastings said the purchases were made in the open market when the window for insiders to trade opened up following its results release. They "speak for themselves," he said, in voicing "confidence" in the company's future.

A cluster of buying like this is a "consensus of bullishness," according to Jonathan Moreland, director of research for InsiderInsights.com. He said filings disclosing the purchases attracted his interest, but his firm hasn't bought or advised the purchase of shares yet because the "fundamentals look challenging," and there is perhaps an even lower entry point as the small rally the stock had on the buying disclosures further abates.

Furniture Brands shares sold off when it reported fourth-quarter results on Feb. 3, but began to rise when the purchases were disclosed the following week. As often happens in cases like this, Mr. Moreland said, the rally met resistance at the level of its 50-week moving average on Friday and fell this week, leading him to think the stock may move back to where it traded before the buying was announced.

The stock closed at $3.80 after its disappointing results, and climbed as high as $4.89 after the disclosure; shares recently traded at $4.27 apiece. The stock hit an all-time high near $43 in early 2002 and fell below $1 in early 2009, as the depths of the recession put its future in question.

Brian Sozzi of Wall Street Strategies rates the company a "sell" and bemoans the seemingly constant string of bad news from the company in the years he has followed Furniture Brands. It doesn't have the effective retail network of Ethan Allen Interiors, and none of its brands, like Broyhill, Lane, Thomasville and Drexel Heritage, has the cachet of La-Z-Boy Inc., he said. "I don't know if the bleeding is done," he added.

Nonetheless, he can envision a scenario that would make the long-term outlook for the stock attractive: The economy continues to improve, and with it customer spending on furniture, enough that the company is able to survive until 2015, when it can shed dozens of underperforming Thomasville stores and become a leaner, more-profitable operation.

source: http://online.wsj.com/article/SB10001424052748703905404576164631471091532.html?mod=googlenews_wsj