Consumer Discretionary
This furniture manufacturer faces weakening end markets, high debt levels (post Knoll acquisition) and excess inventory. Price increases have masked declining volumes. MLKN’s sales have fallen ~40% in past downturns, yet current forecasts expect a mere 12% peak to trough drop. Eric Fernandez believes a min. 25% decline is more realistic. Furthermore, the secular trends working against office leasing will dampen a sales recovery. Eric expects EBITDA margins to also come under pressure (fell from 15% to 9% in both previous downturns). However, the financial leverage today is much worse than before. That will have a disproportion impact on EPS and net cash flows after interest.
Edition: 161
- 26 May, 2023