Stifel Comments on Beaulieu Bankruptcy Filing

St. Louis, MO, July 20, 2017-Analyst Stifel offers its perspective on Beaulieu’s bankruptcy filing,

“Carpet competitor Beaulieu has filed for bankruptcy. While any disappearance of a competitor would be a good thing, we are not necessarily counting on a huge uptick in carpet sales for Mohawk as this category continues to be very competitive and overall losing share to hard surface. Good news for Mohawk of course is that the company is very well positioned in the hard surface market.

“On July 18th, carpet competitor Beaulieu LLC announced it has filed for Chapter 11. For decades, Beaulieu was the third largest producer of residential carpet in the U.S. (recently surpassed by Engineered Floors LLC) and had revenues at its peak in excess of $1 billion.

“The company has experienced a steady decline of its business over the past decade and estimates put Beaulieu’s 2016 revenues in the $450 million range. That would have represented somewhere between 5-6% of the market in 2016. We suspect that the current run-rate of sales is materially lower than that figure as the major carpet buyers (Home Depot, Lowe’s, Menards, Empire etc.) had become increasingly nervous about Beaulieu’s long-term future and have been moving away from this vendor.

“Beaulieu is pursuing debtor-in-possession (DIP) financing and has indicated in a filing that it has debt of $50-100 million. We have no way of assessing the outcome of this next step. In recent years, two smaller carpet producers (Gullistan and Royalty) went chapter 7. Engineered Floors (started by former Shaw Industries CEO Robert Shaw) has invested heavily in Northwest Georgia in new carpet producing assets in an industry that is currently not growing (we believe Q2 residential carpet units were relatively flat), which has no doubt accelerated Beaulieu’s share loss in recent years.

“While Mohawk could benefit from further share loss from Beaulieu, the additional capacity that Engineered Floors has brought into the market would temper our enthusiasm somewhat. The residential carpet industry remains highly competitive and there continues to be category share loss to hard surfaces. Obviously, if the Beaulieu situation deteriorates more rapidly than a smooth chapter 11, there could be some nearer term benefit but we will have to wait and see what the ultimate outcome of this situation becomes.”

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