The home furnishing industry primarily focuses on various products and accessories required for residential purposes and therefore demand for its products is related to performance of the broader housing construction market. Though the year started on a rather soft note, construction activity picked up in 2016 on the back of strong housing fundamentals.

Positives like an improving economy, modest wage growth, low unemployment levels, low interest rates, positive consumer confidence and a tight supply situation raise optimism about the sector’s performance for the whole of 2017.

However, the recently announced interest rate hike by the Federal Reserve by a quarter percentage point to a range of 0.50% to 0.75% (the current range 0.25% to 0.50%) could hurt the housing market. With the Fed announcing a hike in the benchmark Federal Funds target rate, mortgage rates will probably rise in 2017 or after that. High mortgage rates dilute the demand for new homes as mortgage loans become expensive. This lowers the purchasing power of buyers and hurts volumes, revenues and profits of homebuilders.

The mixed scenario in the retail-home furnishing industry is evident from the fact that out of the 260-plus industries, the Retail-Home Furnishings industry holds a Zacks Industry Rank #94. It falls in the middle one-third of all Industry Ranks, which signals that the outlook for the industry is ‘Neutral.’ We rank all the 260-plus industries in 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. To learn more visit: About Zacks Industry Rank.

Given this backdrop, let’s try to ascertain which of these two key home furnishing players – Haverty Furniture Companies, Inc. (HVT Quick QuoteHVT - Free Report) and Williams-Sonoma Inc. (WSM Quick QuoteWSM - Free Report) presently make for a better investment option.

Williams-Sonoma’s market capitalization is $4.8 billion, while that of Haverty Furniture is just $0.5 billion. Going by its business size, Williams-Sonoma is undoubtedly a winner and is better positioned over the long term owing to its massive scale of operations. However, short-term industry headwinds are likely to adversely impact both the companies.

Haverty appears compelling from the earnings perspective. This retailer of full-service home furnishings registered positive earnings surprises in three out of the trailing four quarters, making for an average positive surprise of 6.8%. Additionally, the company is on track with its store expansion strategy. Going forward, the company will enter a new market in Greensboro, NC.

Further, the company remains focused on reinforcing its position in the regions located in key markets within reach of most of its distribution units. Moreover, the company is making innovations with respect to its technology developments. Also, its shareholder-friendly moves are noteworthy. However, Haverty Furniture faces competition in the furniture retail industry. Consumer spending and general economic issues remain major concerns for the company.

On the other hand, Williams-Sonoma puts a lot of focus on innovation and has also adopted a transformation drive to address the slowdown in traffic. The company has been reworking on its marketing strategy, placing more emphasis on digital targeted marketing, investing in remodeling of stores, and liquidating less-productive stock keeping units from its inventory through retail outlets.

However, Williams-Sonoma has been reporting soft comparable brand revenues for quite some time. The rate of increase of comparable brand revenues has decreased significantly from 8.8% in 2013 and 7.1% in 2014 to 3.7% in 2015. In fact, the company now expects comparable brand revenues growth in the 1–2% range for 2016, as announced in the third quarter 2016 results, lower than the prior expectation of 1–4%. This does not indicate any significant improvement from the current trend.

Let’s delve into the details.

Zacks Rank

Our proprietary Zacks Rank, which is designed to predict price movements over the next one to three months, comes in handy in this scenario. Going by this metric, San Francisco, CA-based Williams-Sonoma holds a Zacks Rank #4 (Sell), which means that it is likely to underperform in comparison to the broader market over the next few months.

On the other hand, Atlanta, GA-based Haverty, a Zacks Rank #3 (Hold) stock, carries a favorable rank when compared with Williams-Sonoma and is likely to perform in-line with the broader market over the next few months.

On Dec 7, Haverty provided its fourth-quarter 2016 sales and comps update. Sales for fourth quarter to date of 2016 rose nearly 1.1% year over year while comps increased 1.4%. Written sales were up 4.5% and written comps rose 4.7% over the same time frame. The written business for the four-day Thanksgiving holiday sales period improved roughly 14.3% in total, while its comps grew 16% year over year.

Williams-Sonoma has been reporting soft comparable brand revenues for sometimes owing to a soft retail environment and cautious customers, which has led management to lower the company’s 2016 outlook. It has lowered its earnings, revenues as well as comparable brand revenue projections for the year.

VGM Score

Haverty is a clear winner in terms of Style Score, as its VGM score of ‘A’ is better than Williams-Sonoma’s VGM score of ‘D.’

However, in order to screen out potential value stocks, we consider only those that have a Zacks Rank #1 or #2 and a value score of ‘A’ or ‘B.’ Since Haverty carries a Zacks Rank #3, we cannot consider it a favorable investing option.

Price Performance

The performance of the companies is well reflected in the prices on a year-to-date basis. While shares of Williams-Sonoma are declining, Haverty shares are on fire and rising in comparison to the Zacks categorized Retail-Home Furnishings industry, which is declining. Share price of Haverty improved a significant 13.6%, while Williams-Sonoma slipped 7.9% on a year-to-date basis. The industry has declined 19.3% on a year-to-date basis.

Estimate Revisions

Upward estimate revisions are indicative of positive investor sentiment about a stock. However, both the companies are showing a declining trend over the past 60 days period. The Zacks Consensus Estimate for Williams-Sonoma has gone down 1.4% and 3.7% for fiscal 2017 and fiscal 2018, respectively, over the last 60 days. However, the same has gone down by merely 0.8% for 2016 and 0.7% for 2017 over the last 60 days for Haverty. This reflects that Haverty is still better positioned, despite witnessing negative estimates revisions.

The above arguments clearly state that despite the headwinds in the broader industry, Haverty has the potential to sustain and is better placed currently and should offer great value to investors.

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