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Meritage Homes Corp (MTH), Lennar Corporation (LEN), Pier 1 Imports, Inc. (PIR): The Housing Market Should Catapult These Retailers Higher

An improving housing market should catapult retailers to higher altitudes. The housing market has been picking up recently, and new furniture is needed as home sales increase. For this reason, furniture-retail companies could provide capital appreciation to their investors. Two retail companies have released their quarterly earnings results, and since the housing market seems to be growing, these two companies should continue to rally in the future.

Housing market outlook

Meritage Homes CorpMeritage Homes Corp (NYSE:MTH) reported a 39% increase in the number of homes closed to 1,052 in 1Q 2013 from 759 in 1Q 2012. Its home-closing revenue increased 52% to $330 million in 1Q 2012 from $204 million in 1Q 2012. What’s more is that the new-home orders jumped 35% to 1,544 in 1Q 2013, from 1,444 in 1Q 2012.

Lennar Corporation (NYSE:LEN) delivered 3,186 homes in 1Q 2013, up 28% from the same period a year ago. Also, its new orders rose 34% to 4,055. Net revenue increased 37% to $989 million in 1Q 2013.

Overall, the number of new homes sold has been rising, and demand looks strong. Furniture-retail companies should generate more income as demand for their products increase in the near term.

Furniture sellers

Pier 1 Imports, Inc. (NYSE:PIR and Williams-Sonoma, Inc. (NYSE:WSM are two mid-sized companies by market capitalization that sell furniture in brick-and-mortar stores and online. Pier 1 Imports, Inc. (NYSE:PIR)’ operations extend to Mexico and Canada, while Williams-Sonoma, Inc. (NYSE:WSM) has a huge presence in online-shopping. These companies should continue to bring capital appreciation to their shareholders, and they should suit growth-oriented portfolios.

Quarterly earnings reports

Pier 1 Imports, Inc. (NYSE:PIR) reported an increase of 15% in its net revenue to $551 million for the three months ending in March from $476 million for the same period in 2012. The operation costs rose to $296 million from $259 million, and the company’s gross profit increased to 46.2% to $254 million in 1Q 2013.

However, its net income declined to $61 million from $115 million because the company had a tax benefit during the same quarter a year ago. The company’s solid balance sheet was crucial in the declaration of a $0.05 per-share dividend payment.

The company finished the quarter with $9.5 million in debt and a debt ratio of 0.01.

Despite the apparent decrease in its net income due to tax benefits in 1Q 2012, the company has increased revenue on a quarter-over-quarter basis, and its operation margin is increasing. Furthermore, dividend hikes may be expected in the near future since its balance sheet does not carry a considerable amount of debt.

Williams-Sonoma reported an increase in its net revenues to $1.4 billion for the three months ending on Jan. 29 from $1.2 billion for the same period a year ago. Its operating costs rose to $825 million from $744 million. Its gross margin remained unchanged at 41.3%. After taxes, its net income rose to $133 million or $1.34 diluted EPS from $122 million or $1.17.

The company finished the quarter with no debt on its balance sheet due to a solid business plan. Further, the company increased its quarterly dividend payment by 41% to $0.31. Additionally, the company authorized a three-year $750 stock- repurchase program.

Conclusion

The US housing market seems to be improving, according to reports, and major building companies such as Meritage Homes Corp (NYSE:MTH) and Lennar Corporation (NYSE:LEN) are reporting increasing revenue due to increasing homes deliveries. Moreover, new homes orders are increasing. An increase in home sales should positively impact furniture retail companies.

Pier 1 Imports, Inc. (NYSE:PIR) and Williams-Sonoma have solid balance sheets according to their most recent earnings results. Revenue increasing on a quarter-over-quarter basis, as is net income. These companies also have no debt on their balance sheets. Investors should observe capital appreciation in the interim on these retailers.

The article The Housing Market Should Catapult These Retailers Higher originally appeared on Fool.com and is written by Robinson Roacho.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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