Chromcraft Revington is a furniture manufacturer headquartered in Indiana. The company sells commercial and residential furniture products through independent dealers in the U.S. Brands include Peters Revington, Cochrane, Silver Furniture and Sumter Cabinet Company.
Restructuring Plan
Chromcraft Revington is in the middle of a long-term restructuring plan that was announced in 2006, that includes the relocation and outsourcing of its operations to utilize a global supply chain. The goal of the restructuring is to move production to overseas locations to take advantage of lower labor and material costs. This has been a slow and painful process for the company, and in cost the company $9.0 million in 2006 and 2007. The company closed a plant in the first half of 2008 as well, and said that it would result in a charge of $1.5-2.0 million primarily in the first half of 2008.
One bright spot is that the company reported no debt on its balance sheet in its most recent quarter, and has a $35 million unused credit line available. (To learn more about these calculations, read Breaking Down The Balance Sheet.)
Net Current Asset Value
Chromcraft Revington is also one of those rare stocks that is selling below its net current asset value. Net current asset value is calculated as the total amount of current assets less total liabilities. If we use data as of the end of the second quarter (6/28/2008) we get a net current asset value of $6.78 per share, while the stock is selling at $1.50:
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Current Assets
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$44,459
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Total Liabilities
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$13,401
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Net Current Asset Value
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$31,058
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Shares Outstanding
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4,582
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NCAV Per Share
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$6.78
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Current Price
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$1.50
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Price to NCAV
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22.1%
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In theory, what this means is that the company can be liquidated by selling all the current assets and using the proceeds to pay off all the liabilities, leaving a large amount left over for shareholders. The concept was popularized by Benjamin Graham who thought that it provided a margin of safety to investors when buying a stock. Graham advised purchase at two-thirds of a company's net current asset value.
Despite the cheap valuation, Chromcraft Revington has been struggling. The company reported a net loss of $6.03 million in its last quarter, on only $25 million in revenue. While part of this loss is undoubtedly due to restructuring activities, including severance and inventory writedowns, clearly there are other problems at work. (For related reading, see Inventory Valuation For Investors: FIFO And LIFO.)
Other furniture companies have been struggling as well as they face the dual impact of slowing consumer demand, and for those with domestic manufacturing, competition from cheap imports. These include Furniture Brands International (NYSE:FBN), Hooker Furniture Corp. (Nasdaq:HOFT) and Stanley Furniture (Nasdaq:STLY)
Bottom Line
Chromcraft is down 70% in 2008, despite its attractive valuation selling below its net current asset value, and its unlevered balance sheet.
For more of Graham's wisdom, read The 3 Most Timeless Investment Principles.
