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2 Retail Home Furnishing Stocks to Watch Amid a Challenging Industry
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Challenging market conditions, reduced consumer spending in light of rising inflation and an elevated interest rate environment have been dampening the demand for the Zacks Retail-Home Furnishings industry. Although an improved housing market scenario, backed by limited existing inventory, is a boon for the industry players, a series of rate hikes, continued investments in e-commerce and higher raw material costs in the home furnishing market are concerns. However, consumers’ increasing desire for shopping, efficient cost management, a persistent focus on product innovation, efforts to redesign the supply-chain network and rationalize product offerings as well as investments in the merchandising of brands and digital marketing should lend support to companies like Williams-Sonoma, Inc. (WSM - Free Report) and Fortune Brands Innovations, Inc. (FBIN - Free Report) .
Industry Description
The Zacks Retail-Home Furnishings industry comprises retailers offering home furnishing products under various categories. The merchandise assortment includes furniture, garden accessories, framed art, lighting, mirrors, candles, tableware, lamps, picture frames, bathware, accent rugs, artificial floral products, and child and teen furnishing. The industry players also develop, manufacture, market and distribute bedding products. The companies provide home and security products for residential home repair, remodeling, new construction and security applications. They are involved in manufacturing, assembling and selling faucets, accessories, kitchen sinks and waste disposal.
3 Trends Shaping the Future of the Retail-Home Furnishings Industry
Low Consumer Spending & Economic Uncertainty: Consumers are grappling with a range of economic challenges, including heightened inflation, increased interest rates, and geopolitical tensions. Together, these factors have significantly reduced consumer confidence. The robustness of consumer confidence is pivotal in shaping the overall health of the economy, and any decrease in it could result in significant consequences for spending. Notably, consumer confidence experienced another decline in October 2023 compared to the previous month, marking three consecutive months of downturn. Also, per the latest Commerce Department's Census Bureau report, sales at furniture and home furnishing stores slumped the most, falling 2% in October 2023 from the prior month. Notably, higher mortgage rates are taking a toll on the housing sector and hence on the furnishing market. Although a recently improved housing market scenario (due to the lack of existing homes for sale) has been giving a little respite for the industry players, lower discretionary spending due to an overall inflationary landscape and a higher-interest-rate environment has been a dampener.
Inflationary Pressures & Stiff Competition: Accelerating raw material and freight costs (including e-commerce shipping), as well as higher employment-related expenses, have been putting pressure on the companies’ margins. Again, although the sales-building initiatives of the industry participants have been reaping positive results, these involve high costs. Industry players have also been grappling with supply-chain bottlenecks.
Meanwhile, the home furnishing industry is highly competitive, with interior design trade and specialty stores, antique dealers, national and regional home furnishing retailers as well as department stores giving a hard time. Online retailers focused on home furnishing also pose a threat. Competitive product pricing has been eating into margins.
Strong Digital Platform, Product Reinvention & Marketing Moves: The optimization of the supply chain and an improvement in e-commerce channels are expected to drive the top line. E-commerce will continue to play a major role as people find it more comfortable and safer to shop online. Product innovation plays a pivotal role in market share gain in this industry. Companies aim to come up with products and collaborate with celebrated brands and designers to maintain exclusivity. Also, customer experience is being enhanced by innovative marketing techniques, with an emphasis on digital marketing, better merchandising, store remodeling and loyalty programs.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Retail-Home Furnishings industry is a seven-stock group within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #242, which places it in the bottom 4% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of lower earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since October 2023, the industry’s earnings estimates for 2023 and 2024 have decreased 3.7% and 2.5%, respectively.
Despite the industry’s blurred near-term view, we will present a few stocks that one may consider adding to their portfolio. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Outperforms the Sector & S&P 500
The Zacks Retail-Home Furnishings industry has outperformed the broader Zacks Retail-Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has risen 19.9% compared with the broader sector’s 12.5% growth. The Zacks S&P 500 composite has gained 13.3% over this period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is commonly used for valuing retail home furnishing stocks, the industry is currently trading at 11.9 compared with the S&P 500’s 19.09 and the sector’s 21.13.
Over the last five years, the industry has traded as high as 19.43X and as low as 7.09X, with the median being 13.22X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
Williams-Sonoma: This is a San Francisco, CA-based multi-channel specialty retailer. The company has been benefiting from its focus on digital initiatives, higher e-commerce penetration and product introductions. In addition to the continued enhancement of the e-commerce channel, the optimization of the supply chain and disciplined cost control are expected to drive growth. Despite an increasingly promotional environment and softening industry metrics, WSM has been leveraging its market advantages and focusing on regular-price selling, driving improved customer service and controlling costs. The company’s portfolio of brands serving a range of categories, aesthetics and life stages are tailwinds.
The WSM stock has gained 47% over the past year. Estimates for WSM’s fiscal 2023 earnings have increased to $14.10 per share from $13.91 over the past seven days, showcasing analysts’ optimism about the company’s prospects. This company surpassed earnings estimates in all the trailing four quarters, the average being 8.9%. It also has a favorable VGM Score of B, making it a potentially interesting investment opportunity.
Price and Consensus: WSM
Fortune Brands Innovations: Based in Deerfield, IL, this company provides home and security products for residential home repair, remodeling, new construction and security applications in the United States and internationally. Amid the ongoing challenging economic conditions, the company has been focusing on an alteration in the cost structure, proficient production planning, protecting margins and improving cash generation. The company has rebranded its entire company, with a business focused on driving accelerated growth in categories through brand and innovation. It has reorganized the company from a decentralized structure with separate businesses to an aligned operating model that prioritizes activities that are key to brand, innovation and channel. These transformative changes will enable Fortune Brands Innovations to drive growth in the future.
The FBIN stock has risen 1.7% over the past year. This company surpassed earnings estimates in all the trailing four quarters, the average being 10.6%. Estimates for 2023 earnings have increased to $3.88 per share from $3.86 over the past 30 days. It also has a favorable VGM Score of B.
Price and Consensus: FBIN
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2 Retail Home Furnishing Stocks to Watch Amid a Challenging Industry
Challenging market conditions, reduced consumer spending in light of rising inflation and an elevated interest rate environment have been dampening the demand for the Zacks Retail-Home Furnishings industry. Although an improved housing market scenario, backed by limited existing inventory, is a boon for the industry players, a series of rate hikes, continued investments in e-commerce and higher raw material costs in the home furnishing market are concerns. However, consumers’ increasing desire for shopping, efficient cost management, a persistent focus on product innovation, efforts to redesign the supply-chain network and rationalize product offerings as well as investments in the merchandising of brands and digital marketing should lend support to companies like Williams-Sonoma, Inc. (WSM - Free Report) and Fortune Brands Innovations, Inc. (FBIN - Free Report) .
Industry Description
The Zacks Retail-Home Furnishings industry comprises retailers offering home furnishing products under various categories. The merchandise assortment includes furniture, garden accessories, framed art, lighting, mirrors, candles, tableware, lamps, picture frames, bathware, accent rugs, artificial floral products, and child and teen furnishing. The industry players also develop, manufacture, market and distribute bedding products. The companies provide home and security products for residential home repair, remodeling, new construction and security applications. They are involved in manufacturing, assembling and selling faucets, accessories, kitchen sinks and waste disposal.
3 Trends Shaping the Future of the Retail-Home Furnishings Industry
Low Consumer Spending & Economic Uncertainty: Consumers are grappling with a range of economic challenges, including heightened inflation, increased interest rates, and geopolitical tensions. Together, these factors have significantly reduced consumer confidence. The robustness of consumer confidence is pivotal in shaping the overall health of the economy, and any decrease in it could result in significant consequences for spending. Notably, consumer confidence experienced another decline in October 2023 compared to the previous month, marking three consecutive months of downturn. Also, per the latest Commerce Department's Census Bureau report, sales at furniture and home furnishing stores slumped the most, falling 2% in October 2023 from the prior month. Notably, higher mortgage rates are taking a toll on the housing sector and hence on the furnishing market. Although a recently improved housing market scenario (due to the lack of existing homes for sale) has been giving a little respite for the industry players, lower discretionary spending due to an overall inflationary landscape and a higher-interest-rate environment has been a dampener.
Inflationary Pressures & Stiff Competition: Accelerating raw material and freight costs (including e-commerce shipping), as well as higher employment-related expenses, have been putting pressure on the companies’ margins. Again, although the sales-building initiatives of the industry participants have been reaping positive results, these involve high costs. Industry players have also been grappling with supply-chain bottlenecks.
Meanwhile, the home furnishing industry is highly competitive, with interior design trade and specialty stores, antique dealers, national and regional home furnishing retailers as well as department stores giving a hard time. Online retailers focused on home furnishing also pose a threat. Competitive product pricing has been eating into margins.
Strong Digital Platform, Product Reinvention & Marketing Moves: The optimization of the supply chain and an improvement in e-commerce channels are expected to drive the top line. E-commerce will continue to play a major role as people find it more comfortable and safer to shop online. Product innovation plays a pivotal role in market share gain in this industry. Companies aim to come up with products and collaborate with celebrated brands and designers to maintain exclusivity. Also, customer experience is being enhanced by innovative marketing techniques, with an emphasis on digital marketing, better merchandising, store remodeling and loyalty programs.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Retail-Home Furnishings industry is a seven-stock group within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #242, which places it in the bottom 4% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of lower earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since October 2023, the industry’s earnings estimates for 2023 and 2024 have decreased 3.7% and 2.5%, respectively.
Despite the industry’s blurred near-term view, we will present a few stocks that one may consider adding to their portfolio. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Outperforms the Sector & S&P 500
The Zacks Retail-Home Furnishings industry has outperformed the broader Zacks Retail-Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has risen 19.9% compared with the broader sector’s 12.5% growth. The Zacks S&P 500 composite has gained 13.3% over this period.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is commonly used for valuing retail home furnishing stocks, the industry is currently trading at 11.9 compared with the S&P 500’s 19.09 and the sector’s 21.13.
Over the last five years, the industry has traded as high as 19.43X and as low as 7.09X, with the median being 13.22X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
2 Retail-Home Furnishings Stocks to Watch
We have highlighted two stocks currently carrying a Zacks Rank #3 (Hold). These stocks have been capitalizing on fundamental strengths and have solid growth prospects. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Williams-Sonoma: This is a San Francisco, CA-based multi-channel specialty retailer. The company has been benefiting from its focus on digital initiatives, higher e-commerce penetration and product introductions. In addition to the continued enhancement of the e-commerce channel, the optimization of the supply chain and disciplined cost control are expected to drive growth. Despite an increasingly promotional environment and softening industry metrics, WSM has been leveraging its market advantages and focusing on regular-price selling, driving improved customer service and controlling costs. The company’s portfolio of brands serving a range of categories, aesthetics and life stages are tailwinds.
The WSM stock has gained 47% over the past year. Estimates for WSM’s fiscal 2023 earnings have increased to $14.10 per share from $13.91 over the past seven days, showcasing analysts’ optimism about the company’s prospects. This company surpassed earnings estimates in all the trailing four quarters, the average being 8.9%. It also has a favorable VGM Score of B, making it a potentially interesting investment opportunity.
Price and Consensus: WSM
Fortune Brands Innovations: Based in Deerfield, IL, this company provides home and security products for residential home repair, remodeling, new construction and security applications in the United States and internationally. Amid the ongoing challenging economic conditions, the company has been focusing on an alteration in the cost structure, proficient production planning, protecting margins and improving cash generation. The company has rebranded its entire company, with a business focused on driving accelerated growth in categories through brand and innovation. It has reorganized the company from a decentralized structure with separate businesses to an aligned operating model that prioritizes activities that are key to brand, innovation and channel. These transformative changes will enable Fortune Brands Innovations to drive growth in the future.
The FBIN stock has risen 1.7% over the past year. This company surpassed earnings estimates in all the trailing four quarters, the average being 10.6%. Estimates for 2023 earnings have increased to $3.88 per share from $3.86 over the past 30 days. It also has a favorable VGM Score of B.
Price and Consensus: FBIN