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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 kind of guidance are you giving to investors?

Mr. Hughes: Near term (by “near term,” I mean for the next several months), I think these stocks are going to move with the market, whichever way that is, depending on various macroeconomic data. I think investors have to remember that some sectors that have held up better through this year are now seeing pressure. These industries are not among them. They were among the first to start to see declines — in fact, we saw the industry starting to slow down in May 2000 — so we’re close to a year and a half into the slowdown. I think that’s one of the reasons why these sectors, in terms of demand trends pre- and post-attack, have held up better than other parts of the economy: they’ve been in a recession for a very long time. In terms of the stock price, I think that once we get any signs that the economy is getting better, whenever that occurs, these companies will be among the first ones to go up. Their comparisons are very easy heading into next year, and they’ve done a lot of cost cutting, which will really help the bottom line once they get volume running back through their plants.

TWST: How do you see consumer sentiment today?

Mr. Hughes: Consumer sentiment hasn’t really deteriorated as much as some think since the second quarter, when these products bottomed out, as a lot of the marginal buyers were chased out of the market at that time. What’s going to happen moving forward? So far we’ve seen the sectors hold their own. There are a lot of issues, both international and domestic, that could affect consumer demand, and I don’t even try to predict those. But I think sentiment, at least from what we know now, seems to have bottomed.

TWST: Are there any stocks in the group that investors could be starting to nibble at if we have reached the bottom?

Mr. Hughes: Mohawk (NYSE:MHK) has been the most vibrant of all the stocks I cover. It’s up 63% this year. The reason for that is that floor covering — and specifically carpet, which is Mohawk’s biggest product category — has been much less cyclical than the furniture segment, as has historically been the case as well as during this slowdown. Mohawk is a well-managed company that’s been able to squeeze a lot of cost out of various areas of its business. Its earnings, while not showing a lot of year-over-year gains, have held up better than many in this sector, and as a result the stock has done tremendously well. Everyone else in the group, particularly on the residential furnishings side, is starting to see more interest.

TWST: Where does Mohawk go from here? You say it’s up 63%. What kind of upside do you see from this point?

Mr. Hughes: It’s still trading at around 12-13 times, which is not an historically very big multiple for this stock. I think two things could potentially happen once we get signs that the economy is getting better. First of all, the earnings of these companies are going to ramp up significantly versus what we’re seeing here in 2001. There are two reasons for that. One, it has historically been the case that coming out of recession a lot of the demand for the product that you thought you had lost you haven’t really lost; it’s just been delayed until consumers either have more money or feel more confident about spending their money. Coming out of these really poor years in the industry, you typically have some of your best years, so you’ve got a great revenue story for these companies. In terms of the upside for Mohawk, it’s impossible to quantify now. We don’t know when the recovery is going to come. I know the stocks will move before the numbers start hitting the income statement, and as a result we have buys on most of our universe in order to capture the upside story as we move toward a recovery.

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.