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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., Fortune Brands Innovations, Inc., RH and Ethan Allen Interiors Inc.
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 furnishings.
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: The industry has been suffering from softness in business trends due to the Federal Reserve's series of interest rate hikes. 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.
The U.S. economy is expected to slow down in the coming months as the Federal Reserve continues its extraordinary measures to combat inflation. Rising prices are putting financial strain on households, and the Federal Reserve's aggressive interest rate hikes are exacerbating the situation by diminishing consumers' disposable incomes.
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 #182, which places it in the bottom 26% 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.
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, Lags the S&P 500
The Zacks Retail-Home Furnishings industry has outperformed the broader Zacks Retail-Wholesale sector but underperformed the Zacks S&P 500 composite over the past year.
The industry has risen 8.5% compared with the broader sector's 2.7% growth. The Zacks S&P 500 composite has gained 9.3% over this period.
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 11.03 compared with the S&P 500's 19.07 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 13.59X.
4 Retail-Home Furnishings Stocks to Watch
We have highlighted one stock, currently carrying a Zacks Rank #2 (Buy), and three stocks with a Zacks Rank #3 (Hold). These stocks have been capitalizing on fundamental strengths and have solid growth prospects. You can seethe complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Ethan Allen Interiors Inc.: This Danbury, CT-based company engages in interior design, and manufacture and retail of home furnishings. Its wide array of offerings, a strong network of retail design centers and focus on interior design services as well as technological enhancement have been benefiting the company. It remains well-positioned for fiscal 2024 with its product offerings and the advantage of vertical integration, including its North American manufacturing, interior design-focused retail network, a strong logistics network and a healthy balance sheet to maximize opportunities during the year.
ETD shares have rallied 26% over the past year, outperforming the industry. This Zacks Rank #2 company's earnings estimates for fiscal 2024 have increased to $3.25 per share from $3.04 per share over the past 30 days. This depicts analysts' optimism over the company's growth prospects.
ETD's earnings topped the consensus mark in all the last four quarters, with the average surprise being 22.2%. Again, it carries an impressive VGM Score of B. This helps identify stocks with the most attractive value, growth and momentum.
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.
This Zacks Rank #3 stock has declined 9.4% over the past year. However, estimates for WSM's fiscal 2023 earnings have increased to $13.75 per share from $13.38 per share over the past seven days. This company surpassed earnings estimates in three of the trailing four quarters and missed in one, the average being 6.1%.
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 in 2023.
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, carrying a Zacks Rank #3, has risen 5.7% over the past year. This company surpassed earnings estimates in all the trailing four quarters, the average being 9.1%. Estimates for 2023 earnings have increased to $3.88 per share from $3.82 over the past 30 days, showcasing analysts' optimism about the company's prospects.
RH: Based in Corte Madera, CA, this leading luxury retailer in the home furnishing space has been riding high, given prudent growth initiatives and margin expansion efforts. A focus on elevating the brand and architecting an integrated operating platform has aided RH in becoming one of the few retailers with solid margins and operating earnings. Despite a tepid luxury housing market and a broader economic outlook, RH's efforts to elevate the design and quality of products and its plan to expand the RH brand globally will continue to drive growth.
The RH stock has rallied 26.9% over the past year, outperforming the industry. RH carries a Zacks Rank #3, and the company's earnings estimates for fiscal 2024 have increased to $3.25 per share from $3.04 per share over the past 30 days. RH surpassed earnings estimates in three of the trailing four quarters and missed in one, the average being 7.8%.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Williams-Sonoma, Fortune Brands Innovations, RH and Ethan Allen Interiors
For Immediate Release
Chicago, IL – August 29, 2023 – Today, Zacks Equity Research discusses Williams-Sonoma, Inc. (WSM - Free Report) , Fortune Brands Innovations, Inc. (FBIN - Free Report) , RH (RH - Free Report) and Ethan Allen Interiors Inc. (ETD - Free Report) .
Industry: Furniture
Link: https://www.zacks.com/commentary/2141453/4-retail-home-furnishing-stocks-to-watch-despite-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., Fortune Brands Innovations, Inc., RH and Ethan Allen Interiors Inc.
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 furnishings.
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: The industry has been suffering from softness in business trends due to the Federal Reserve's series of interest rate hikes. 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.
The U.S. economy is expected to slow down in the coming months as the Federal Reserve continues its extraordinary measures to combat inflation. Rising prices are putting financial strain on households, and the Federal Reserve's aggressive interest rate hikes are exacerbating the situation by diminishing consumers' disposable incomes.
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 #182, which places it in the bottom 26% 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.
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, Lags the S&P 500
The Zacks Retail-Home Furnishings industry has outperformed the broader Zacks Retail-Wholesale sector but underperformed the Zacks S&P 500 composite over the past year.
The industry has risen 8.5% compared with the broader sector's 2.7% growth. The Zacks S&P 500 composite has gained 9.3% over this period.
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 11.03 compared with the S&P 500's 19.07 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 13.59X.
4 Retail-Home Furnishings Stocks to Watch
We have highlighted one stock, currently carrying a Zacks Rank #2 (Buy), and three stocks with a Zacks Rank #3 (Hold). These stocks have been capitalizing on fundamental strengths and have solid growth prospects. You can seethe complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Ethan Allen Interiors Inc.: This Danbury, CT-based company engages in interior design, and manufacture and retail of home furnishings. Its wide array of offerings, a strong network of retail design centers and focus on interior design services as well as technological enhancement have been benefiting the company. It remains well-positioned for fiscal 2024 with its product offerings and the advantage of vertical integration, including its North American manufacturing, interior design-focused retail network, a strong logistics network and a healthy balance sheet to maximize opportunities during the year.
ETD shares have rallied 26% over the past year, outperforming the industry. This Zacks Rank #2 company's earnings estimates for fiscal 2024 have increased to $3.25 per share from $3.04 per share over the past 30 days. This depicts analysts' optimism over the company's growth prospects.
ETD's earnings topped the consensus mark in all the last four quarters, with the average surprise being 22.2%. Again, it carries an impressive VGM Score of B. This helps identify stocks with the most attractive value, growth and momentum.
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.
This Zacks Rank #3 stock has declined 9.4% over the past year. However, estimates for WSM's fiscal 2023 earnings have increased to $13.75 per share from $13.38 per share over the past seven days. This company surpassed earnings estimates in three of the trailing four quarters and missed in one, the average being 6.1%.
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 in 2023.
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, carrying a Zacks Rank #3, has risen 5.7% over the past year. This company surpassed earnings estimates in all the trailing four quarters, the average being 9.1%. Estimates for 2023 earnings have increased to $3.88 per share from $3.82 over the past 30 days, showcasing analysts' optimism about the company's prospects.
RH: Based in Corte Madera, CA, this leading luxury retailer in the home furnishing space has been riding high, given prudent growth initiatives and margin expansion efforts. A focus on elevating the brand and architecting an integrated operating platform has aided RH in becoming one of the few retailers with solid margins and operating earnings. Despite a tepid luxury housing market and a broader economic outlook, RH's efforts to elevate the design and quality of products and its plan to expand the RH brand globally will continue to drive growth.
The RH stock has rallied 26.9% over the past year, outperforming the industry. RH carries a Zacks Rank #3, and the company's earnings estimates for fiscal 2024 have increased to $3.25 per share from $3.04 per share over the past 30 days. RH surpassed earnings estimates in three of the trailing four quarters and missed in one, the average being 7.8%.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.