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Three analysts and top management from seven sector firms examine the sector in this special 41-page Home Furnishing issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info450.htm

TWST: What’s it going to take to get an uptick in demand?

Ms. Whelan: Business is going to be slower to come back, and the negative comps will be much deeper than anyone originally anticipated. The good news is that consumers are saving more, so consumer confidence will be stronger when we come out of this downturn than it is now, and than it was 12 months ago. That should bode well for big-ticket purchases, such as furniture. But I’m not sure that we’ll see a pickup before year-end, and the winter period is usually the strongest season. So we may lose those sales until next year. Also, I believe the industry is still facing an inventory glut. Many manufacturers, including those in Asia, build wood furniture to inventory. When business picked up at the end of the summer, most manufacturers built inventory in anticipation of a typical seasonal pickup toward year-end. Unfortunately, the pickup has not been as strong as expected and having too much inventory and spotty demand make it very difficult for manufacturers to run their plants efficiently.

TWST: And when demand does come back, will it come back to the previous TWST: What’s the rationale behind your recommendation of Ethan Allen?

Ms. Whelan: I was very strong on Furniture Brands (NYSE:FBN) for two years and I just recently switched, and now I’m recommending Ethan Allen (NYSE:ETH). The reason is that Ethan Allen has a pristine balance sheet, no debt whatsoever, and they pay a dividend every year. The stock is more liquid than the others in the group, even though management owns more than 10%. As a vertically integrated manufacturer, Ethan Allen stands to gain from the overcapacity and pricing pressure that is troubling pure manufacturers.

TWST: Has Ethan Allen expanded its product offerings?

Ms. Whelan: Over the last two years, they have broadened out the product offerings to increase the market scope. Given the shift in demographics, they needed to appeal to a wider consumer base; in particular, they’ve been shifting somewhat to target consumers buying medium-priced furniture, as opposed to just mid-to high-, which is what they had been targeting formerly. So they introduced Ethan Allen Elements and Horizons, two new collections. Also, they recently added more imported product to their lines, which is a good price and value for the consumer. The only thing that would concern me is that to some degree it cannibalizes the more traditional sales. And that more traditional product is also at a higher price point, so, typically, it would have a higher margin. They also introduced the simple finance plan, an Ethan Allen credit card, which is financed by MBNA (NYSE:KRB), for consumers who make a minimum purchase of 2,000, which has been well received by the market.

TWST: How aggressive has Ethan Allen been in rolling out its retail stores?

Ms. Whelan: I believe they’re opening 15 new stores a year, and that includes seven to eight relocations, whereby they will move underperforming stores into a different region. Ethan Allen only sells furniture that they make through their own stores. They’re fully vertically integrated.

This special issue includes:

1) Furniture & Floor Covering Stocks - In an in-depth (4,600 words) Analyst Interview, John A. Baugh, Managing Director at First Union Securities, Inc., examines the outlook for the sector and shares specific stock recommendations.

2) Furniture & Home Furnishing Companies - In an in-depth (4,300 words) Analyst Interview, Keith Hughes, a Vice President at SunTrust Robinson Humphrey Capital Markets, examines the outlook for the sector and shares specific stock recommendations.

3) Outlook for US Residential Furniture Stocks - In an in-depth (3,500 words) Analyst Interview, Margaret M. Whelan, Associate Director at UBS Warburg, examines the outlook for the sector and shares specific stock recommendations.

4) CEO interviews (average 2,500 words). Top management of seven sector firms examine the outlook for their firm and the sector.