Shares: Take some comfort in furniture

IT MIGHT seem early days for the furniture retailing market to be booming. The housing market is hardly a frenzy of activity and, although Sir Philip Harris has successfully floated his Carpetright business, MFI's recent figures can at best be described as resilient. Argos recently aborted its attempt to break into the furniture market.

But there has been a massive shakeout in the furniture sector and two companies, partly for special reasons, are doing very well and look set to do even better. One is Courts (Furnishers), at 664p. It has a remarkably successful overseas operation but is also doing better in the UK, helped by reviving demand and its growing chain of out-of-town Courts Mammoth stores. The other, much smaller, is Essex Furniture, at 140p, which is starting to roll out its successful Furnishing Workshop format. Both companies have recently reported profit increases over 50 per cent, proof of how successfully they are bucking the recession.

Unlike the fairly recently floated Essex, Courts has been quoted since 1959 and has been a great long term success for investors. This is despite the fact that its performance was lacklustre in the 1980s and has been held back more recently by the severely adverse conditions in the UK market.

The original success of the company, beginning in 1946 with one store in Canterbury, came from a growing chain of high street outlets selling middle of the road ranges of upholstered and dining furniture, curtains and carpets.

The family also had earlier experience of trading overseas with a chain of furniture stores which were sold to GUS during the war. This encouraged the company to go overseas with the new venture, setting up a chain of furniture and electrical outlets in English-speaking areas such as the Caribbean and Fiji, where it had the opportunity to be a big fish in a small pool. These overseas operations, with some bumpy passages such as abortive expansions in Hong Kong and Australia, have become a remarkable international success story.

Last year Courts' overseas sales reached pounds 117m, exceeding UK sales for the first time.

Profits from overseas were spectacular with the Far East (principally Malaysia and Singapore) reaching pounds 9.1m against pounds 5.9m, the Caribbean increasing from pounds 6.3m to pounds 8.2m and the Pacific/Indian Ocean growing from pounds 5.1m to pounds 6.3m. Devaluation helped but the group is operating in vigorously growing countries on a proven format, supplying customers whose lifestyle aspirations are on a sharply rising trend. The opportunity looks substantial.

The exciting prospect now is that for the first time in many years, the UK business may start to fire on all cylinders while overseas growth continues. The group has continued to increase sales and turn in reasonable profits through a dreadful trading period. Simultaneously, it has been repositioning the business away from high street outlets, where sales per square foot are around pounds 70, to its Courts Mammoth outlets where sales per square foot are up from pounds 110 to pounds 115 in the year to 31 March 1993. UK profits could easily move ahead sharply as demand recovers.

Paul Cohen, the chairman, while hardly euphoric, said that conditions were much better than they were 12 months ago. On prospects of current year earnings pushing up towards 40p, and plenty of growth on a medium term view, the shares look attractive.

Essex Furniture is much smaller than Courts but growing even faster. Interim profits for the six months to 31 December 1992 rose by 65 per cent to pounds 619,000 on a 60 per cent sales increase to pounds 5.19m. The product range is similar; the principal difference is that Essex makes the furniture it sells.

Also a family-dominated business, the operation was originally confined to Essex, where the factory and six stores trading as Essex Furniture are located. But in recent years the group has expanded nationally with larger stores trading as Furniture Workshop. The concept is working well as reflected in a mood of great confidence at the group. Michael Franks, the chairman, has promised a minimum of three new stores this year. My guess is that he could double that figure, which would be a dramatic rate of expansion.

Further out, the scope is enormous for a group that ended 1992 with only 12 outlets, in a market where much of the competition has disappeared. Expectations that profits will double between 1992 and 1994 are probably conservative. The shares look a perfect example of an emerging growth stock at the beginning of its run.