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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: Have there been any surprises in 2001 year-to-date with regard to the performance of these companies?

Mr. Hughes: When you talk about performance of the companies, I think you have to split it into two categories. First of all, the stocks themselves, after being virtually ignored by investors for 1999 and most of 2000, have enjoyed very solid years, really beginning since about this time last year, so in 2001 the stock prices have been great. We’ve got companies up anywhere from 10% to 60%. In the business model, this has been a very tough year on the income statement. Both of these sectors have been in recession since early in the year. We’re going to see negative industry numbers and some of the biggest year-over-year declines, particularly in furniture, since the mid-1970s. It’s like a classic cyclical: it’s been a have-and-have-not year. I also think the slowdown in 2001 was much deeper than anyone anticipated, although I think it bottomed out in the second quarter of 2001.

TWST: What kind of a fourth quarter are these companies going to have? And generally, how important is the fourth quarter for companies in this sector?

Mr. Hughes: It’s more important on the furniture side than it is on the floor covering side. Again, holiday buying in the fourth quarter is a big reason. For both sectors, I expect sequential improvement from the third to the fourth quarter, but in terms of year-over-year comparisons, I think they’ll be down in most major categories. The common theme we’ve heard in the industry since the attack was that toward the end of August and the beginning of September, we were seeing, I think, a fairly strong uptick in business in both these categories, a little more pronounced in furniture. That has gone away since September 11. The companies have returned to trends that we saw in the summer months — which were not good by any stretch of the imagination — but the industry has not taken another big step down in demand, as some had anticipated. I don’t know that there’s enough strong consumer sentiment out there to really see an uptick in demand in the fourth quarter. I think companies will do sequentially better as they continue to cut costs and deal with the slowdown, and I think their demand environment is going to get a little more stable. But any kind of recovery is a next-year phenomenon.

TWST: Is there a compelling reason to buy Stanley (Nasdaq:STLY) today?

Mr. Hughes: The same reasons apply that we’ve mentioned for most of the group. At Stanley, youth and home office will help the top line. The collection side of their business has some of the product categories that get hit the worst in a slowdown, and that’s clouded the numbers on Stanley. There’s also an excellent management team at the company that I think has done a good job of managing the situation in the slowdown. And again, if you’re investing in the public furniture realm, you really only have a few options. I think you get a lot of the same benefits on Stanley as I described above.

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.