STLY : Stanley Furniture Stock Analysis and Research Report
2017-11-12 - by Tom, Contributing Analyst
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Stanley Furniture Profile
Established in 1924, Stanley Furniture is a leading design, marketing and overseas sourcing resource in the middle-to-upscale segment of the wood residential furniture market. Stanley Furniture offers a diversified product line supported by an overseas sourcing model. Stanley Furniture markets its brands through a network of brick-and-mortar furniture retailers, online retailers and interior designers worldwide. Stanley Furniture also markets and sells directly to the consumer through a localized approach to ecommerce order fulfillment through Stanley Furniture’s brick-and-mortar customers. Stanley Furniture was incorporated in Delaware in 1984.
Stanley Furniture’s products are marketed as fashionable wood residential home furnishings that differentiate from other products in the market through styling execution as well as wide selections for the entire home including dining, bedroom, living room, home office, home entertainment, accent items and nursery and youth furniture. Stanley Furniture’s target consumer ranges from an affluent, discerning consumer utilizing the talents of an interior designer, to a more practical consumer driven to purchase by convenience, immediate gratification from stock availability or a particular retail event. Regardless, Stanley Furniture targets a consumer who values the interior aesthetics of the home.
Stanley Furniture believes that its products represent good value and that the quality and design of its furniture combined with its broad selection and dependable service differentiates its products in the marketplace.
Stanley Furniture provide products in a variety of wood species and finishes. Its products are designed to appeal to a broad range of consumer tastes in the middle-to-upscale segment and cover all major style categories.
Stanley Furniture continually designs and develops new styles to replace those it discontinues and to expand its product lines into markets where opportunity for growth exists. Stanley Furniture’s in-house product development process, which normally takes approximately one year but can be shorter or longer based upon the complexity of the concept, begins with identifying customer preferences and marketplace trends and conceptualizing product ideas. Company designers produce a variety of sketches from which prototype furniture pieces are built for review prior to full-scale engineering and production. Stanley Furniture consults with its marketing and operations personnel, core suppliers, independent sales representatives and selected customers throughout this process and introduces its new product designs primarily at international furniture markets in High Point, North Carolina and Las Vegas, Nevada, which are each held two times per year for a total of four markets.
During the second quarter of 2014, Stanley Furniture announced the end of domestic production of Stanley Furniture’s Young America nursery and youth furniture brand since revenues remained below levels needed to reach profitability as a domestic manufacturer within a reasonable amount of time. Marketed as a product offering with salient features such as a wide variety of semi-custom color choices, broad item selection and the cache of a product Made in USA, the Young America brand could not be duplicated through an overseas sourcing model. The sale and closure of the supporting manufacturing facility in the second half of 2014 represented the end of Stanley Furniture’s domestic manufacturing of nursery and youth furniture.
In January 2015, Stanley Furniture announced Stanley Furniture’s plans to re-enter the nursery and youth furniture market with a mid-year product launch sourced overseas. Stanley Furniture’s Stone & Leigh brand of nursery and youth was introduced at the High Point Market in April 2015.
Stanley Furniture believes that the diversity of its product offerings enables it to anticipate and address changing consumer preferences and provide retailers a complete wood furniture resource in the middle-to-upscale segment. Stanley Furniture’s products are marketed under the Stanley Furniture brand, but also under sub-brands including Coastal Living® and Stone & Leigh. Stanley Furniture markets its brand through a series of efforts targeted both to the wholesale trade and directly to the consumer. Coastal Living® is a registered trademark of Time Inc. Lifestyle Group and is used under license.
Stanley Furniture has developed a broad domestic and international customer base. Stanley Furniture sell its furniture mainly through independent sales representatives to a variety of wholesale customers such as owner-operated furniture stores, interior design & architecture professionals, decorators, smaller specialty retailers, regional furniture chains, buying clubs and e-commerce retailers. Stanley Furniture also markets and sells directly to the consumer through a localized approach to ecommerce order fulfillment through its brick-and-mortar customer. Stanley Furniture believes this broad network reduces exposure to fluctuations in regional economic conditions, places Stanley Furniture’s brand in as many venues as possible where the consumer may shop and allows it to capitalize on emerging channels of distribution. Stanley Furniture offers tailored marketing programs to address each specific distribution channel. Stanley Furniture’s independent sales representatives along with Stanley Furniture’s customer care managers sell and support Stanley Furniture’s products.
In 2015, Stanley Furniture sold product to approximately 1,400 customers and recorded approximately 10% of its sales from international customers. No single customer accounted for more than 10% of its sales in 2015 and no part of the business is dependent upon a single customer, the loss of which would have a material effect on its business. The loss of several major customers could have a material impact on Stanley Furniture’s business.
Stanley Furniture’s product is currently sourced from independently owned factories in Southeast Asia, primarily in Vietnam. Stanley Furniture operates a support organization to manage partner-vendor relationships. In early 2016, Stanley Furniture established a strategic manufacturing alliance with one such source in Vietnam outside of Ho Chi Minh City: Starwood Manufacturing VN Corporation. This strategic alliance allows for the utilization of a stand-alone, dedicated manufacturing facility in which Stanley Furniture has the ability to engineer its designs specifically for the efficiency of this factory, schedule and supervise production to satisfy its specific customers’ demands and provide quality assurance. Stanley Furniture maintain exclusive rights to utilize the stand-alone facility for as long as it meets certain volume goals for the facility’s capacity utilization. While Stanley Furniture is not obligated to utilize the capacity of the facility should certain market-driven and/or competitive factors not make this factory Stanley Furniture’s best choice, its intentions are to transition substantially all of its products to this facility.
Stanley Furniture is subject to the usual risks inherent in importing products manufactured abroad, including, but not limited to, supply disruptions and delays, port related issues that lead to delays, currency exchange rate fluctuations, economic and political developments and instability, as well as the laws, policies and actions of foreign governments and the United States affecting trade, including tariffs.
A sudden disruption in Stanley Furniture’s supply chain from Starwood or any of its key vendors could significantly compromise its ability to fill customers’ orders and service gaps and short-term increases in cost would likely result. However, Stanley Furniture believe that it could source most impacted products from other overseas suppliers. Stanley Furniture believes maintaining more control over the various aspects of the manufacturing and sourcing process mitigates risk, and therefore believe that its strategic manufacturing alliance give it a potential competitive operational advantage versus certain competitors.
Stanley Furniture enters into standard purchase arrangements with certain overseas suppliers, including Starwood, for finished goods inventory. The terms of these arrangements are customary for the industry and do not contain any long-term purchase obligations. Stanley Furniture generally negotiates firm pricing with its foreign suppliers in U.S. Dollars for a term of one year. Stanley Furniture accepts exposure to exchange rate movement after this period and does not use any derivative instruments to manage or hedge currency risk. Stanley Furniture generally expects to recover any substantial price increases from these suppliers in the price it charges for these goods.
Stanley Furniture warehouses its products primarily in domestic warehouses with some warehousing abroad. Stanley Furniture considers its facilities to be generally modern, well equipped and well maintained. Stanley Furniture uses a small group of furniture specific transportation providers for delivery. While most of Stanley Furniture’s products are delivered to retailers from its warehouses, Stanley Furniture also ships directly to customers from Asia and provides white-glove delivery services directly to the end consumer from Stanley Furniture’s domestic warehouses.
Products are ordered from overseas suppliers based upon both actual and forecasted demand. Because long lead times are generally associated with overseas operations, Stanley Furniture strive to maintain inventory levels that will service most of its wholesale customers’ orders within a maximum of 30 days from receipt of their order. Stanley Furniture’s backlog of unshipped orders was $6.2 million at December 31, 2015 and $6.6 million at December 31, 2014.
The furniture industry is highly competitive, fragmented, and includes a large number of competitors. The barriers to entry are very low, and there is little feasible intellectual property protection in Stanley Furniture’s industry to prevent competitors from imitating furniture designs of another manufacturer. Very few of Stanley Furniture’s competitors manufacture wood residential furniture in the United States.
Stanley Furniture competes with a host of varying business models within the industry including, but not limited to, former manufacturers who have adopted a strictly pass-through model from overseas vendor to wholesale customers; national lifestyle retailers who sell directly to the retail consumer through an omni-channel distribution and marketing model (use of physical channels and digital channels to offer a seamless and unified customer experience); and overseas vendors who sell directly to wholesale customers. Some competitors have greater financial resources and often offer extensively advertised, highly promoted product.
Competitive factors in the middle-to-upscale segment of the industry include design, quality, service, selection and price. Stanley Furniture believes the flexibility and control that it maintains over its operations model, the continued diversification of its distribution, its long-standing customer relationships, its customer responsiveness, its consistent support of high quality and diverse product lines, the heritage of its brand, and its experienced management team are all competitive advantages.
Stanley Furniture employs approximately 71 associates domestically and 29 associates overseas, all of which are full-time employees. Stanley Furniture consider its relationship with its associates to be good. None of Stanley Furniture’s associates are represented by a labor union.
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