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Bear of the Day: Ethan Allen Interiors (ETH)

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The retail apocalypse appears to be upon us and is dragging down a number of companies in the traditional consumer market. And while much of this trend has been focused on the apparel side of the retail world, the furniture side has also been decimated too.

In fact, the home furnishings industry currently has an Industry Rank in the bottom 10% overall, while the retail sector is in the bottom 20% too. Clearly, this isn’t a great combination, and investors might be better served by looking elsewhere for exposure in the retail space. But, if you are looking for a short candidate or a more concrete example of this trend, consider a closer look at Ethan Allen Interiors (ETH - Free Report) .

Why ETH?

Although Ethan Allen shares have held up better than most in the face of the onslaught of negative news in the retail market, there is plenty of reason to be concerned about the company, even beyond its sluggish industry rank. That is because this furniture store chain just missed earnings estimates in its most recent report, posting earnings of just 23 cents per share compared to estimates of 27 cents per share.

Furthermore, analysts have been slashing their expectations for Ethan Allen Interiors in the near future, as we haven’t seen any estimates go higher for the current quarter or the current year in the past two months. Instead, we have seen several analysts move their estimates lower, including four for the current quarter and five for the current year.

Analysts are now expecting a nearly 18% decline in earnings for the full year, while they are expecting a 3% slide in revenues for the full year too. And with such a poor outlook for the industry in general, it is hard to like this stock right now, especially with these company specific fundamentals. No wonder it currently has a Zacks Rank #5 (Strong Sell) and we are looking for underperformance from this company in the near term.

Other Choices

If investors want some good retail selections, then they probably want to look outside the home furnishings space. One hot area is the consumer electronics market, as this segment has a top 10% industry rank, and it doesn’t have any stocks with a Zacks Rank #5 (Strong Sell).

If you are looking for a top ranked name in this market though, then Aaron’s (AAN - Free Report) might be worth a closer look. The company has a Zacks Rank #1 (Strong Buy) and is expected to grow both EPS and sales this year (in year-over-year terms), making it a potentially better choice than Ethan Allen, at least until earnings estimates turn around for ETH stock.

 

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