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5 Stocks to Watch From the Resilient Home Furnishing Industry

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Although spikes in COVID-19 cases, continued investments in e-commerce and intense competition might keep margins under pressure, solid housing market momentum, efficient cost management and continued focus on product innovation are expected to drive the Zacks Retail-Home Furnishings industry. Also, efforts to redesign the supply chain network and rationalize product offerings, and investments in merchandising of brands and digital marketing should lend support to Haverty Furniture Companies, Inc. (HVT - Free Report) , Williams-Sonoma, Inc. (WSM - Free Report) , Tempur Sealy International, Inc. (TPX - Free Report) , At Home Group Inc. (HOME - Free Report) and RH (RH - 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, bath ware, accent rugs, artificial floral products, and child and teen furnishing. The industry players also develop, manufacture, market and distribute bedding products.

3 Trends Shaping the Future of the Retail-Home Furnishings Industry

Solid Residential Market: The industry, which is highly dependent on economic and U.S. housing market conditions, is expected to gain from the housing market rebound. The continuous decline in mortgage rates has been driving new home sales, which in turn should continue to provide surge in home furnishing activity in the near term. Also, the recent $900 billion pandemic relief plan to bolster the U.S. economy amid the continued coronavirus pandemic is expected to provide much impetus to the industry players.

Strong Digital Platform, Product Reinvention, & Marketing Moves: Moreover, product innovation plays a key factor for market share gain in this industry. Companies aim at coming up with products and collaborating with celebrated brands and designers to maintain exclusivity. Also, customer experience is being enhanced by innovative marketing techniques, with emphasis on digital marketing, better merchandising, store remodeling and loyalty programs. Furthermore, optimization of supply chain and improvement of e-commerce channels are expected to drive the top line.

Stiff Competition & Tariff: Home furnishings industry is highly competitive, with interior design trade and specialty stores, antique dealers, national and regional home furnishing retailers, and department stores giving a hard time. Online retailers focused on home furnishing also pose a threat. Competitive product pricing has been eating into margins. Also, even though sales-building initiatives of the industry participants have been reaping results, these involve high costs. Along with these headwinds, increasing raw material and freight costs (including e-commerce shipping) as well as higher employment-related expenses could compress margins. Tariff-related woes are also likely to impact the industry in the near term.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Retail-Home Furnishings industry is an eight-stock group within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #32, which places it at the top 13% 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 bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since September 2020, the industry’s earnings estimates for 2020 and 2021 have been revised 23.6% and 16.4%, respectively, upward.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms S&P 500 & Sector

The Zacks Retail-Home Furnishings industry has outperformed the Zacks S&P 500 composite and the broader Zacks Retail-Wholesale sector over the past year.

The industry has risen 53.1% compared with the S&P 500’s growth of 15.3% and the broader sector’s 38.9% increase over this period.

One-Year Price Performance

 

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing home furnishing stocks, the industry is currently trading at 16.9X compared with the S&P 500’s 22.7X and the sector’s 31X.

Over the last five years, the industry has traded as high as 26.3X and as low as 12.3X, with the median being 15.3X, as the chart below shows.

Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500

 

5 Retail-Home Furnishings Stocks to Watch

We have selected three stocks from the Zacks retail home furnishing sector that currently sport a Zacks Rank #1 (Strong Buy) or 2 (Buy) We also highlight two stocks with a Zacks Rank #3 (Hold) from the same industry that have solid prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.

Haverty Furniture Companies, Inc.: Headquartered in Atlanta, GA, this company operates as a specialty retailer of residential furniture and accessories. Haverty's emphasis on its H Design combined with the state-of-the-art technology helps to create a strong brand presence. Along with this, surge in demand for home furnishings amid the pandemic is expected to benefit the company in the near term.

This Zacks Rank #1 company’s earnings are expected to grow 21.4% in 2020 and 19.7% in 2021. This company has gained 76.7% in the past six months compared with the industry’s 55.6% rise. Haverty has seen upward estimate revision for its 2020 and 2021 bottom line over the past 60 days of 47.9% and 41.7%, respectively, depicting analysts’ optimism over the stock’s earnings prospects.
Price and Consensus: HVT


Williams-Sonoma, Inc.: This is a San Francisco, CA-based multi-channel specialty retailer. The company has been benefiting from solid housing market, focus on digital initiatives, higher e-commerce penetration and product introductions. Notably, e-commerce penetration reached 70% of total revenues in the last-reported quarter. Along with continued enhancement of e-commerce channel, optimization of supply chain and disciplined cost control are expected to drive growth.

This Zacks Rank #1 company’s shares have gained 28.9% over the past six months, underperforming the industry’s rise. That said, earnings estimates for the current year and the next have moved 27.2% and 22.9%, respectively, north over the past 60 days. The company’s earnings are expected to grow 69.2% in 2020.

Price and Consensus: WSM

 

Tempur Sealy International, Inc.: Headquartered in Lexington, KY, this company is involved in the development, manufacturing and marketing of bedding products. Strong industry demand, its worldwide leadership position in the industry and the success of its omni-channel distribution strategy have been aiding its position.

The company sports a Zacks Rank #2 and has an expected earnings growth rate of 75% for 2020 and 13.3% for 2021. Shares have advanced 53.7% over the past six months. Tempur has seen upward estimate revision for its respective 2020 and 2021 bottom line over the past 60 days of 18.2% and 15.1%.
Price and Consensus: TPX


At Home Group Inc.: Headquartered in Plano, TX, this company operates home decor superstores in the United States. Strong demand and the successful execution of the company’s At Home 2.0 strategies, including EDLP+ campaigns, category reinventions and loyalty program expansion, have been driving growth. Notably, gross and operating margins in the third quarter surged strongly on lower occupancy costs, depreciation expenses and distribution center costs.

The company, a Zacks Rank #3 stock, has an expected earnings growth rate of 279% for fiscal 2021. This company has gained 109% in the past six months. At Home has seen upward estimate revision of 26.3% and 3.4% for its fiscal 2021 and 2022 earnings, respectively, over the past 60 days.

Price and Consensus: HOME


RH: Based in headquartered in Corte Madera, CA, RH operates as a retailer of home furnishings. The company has been benefiting from its strength in the multi-channel platform. Its membership model enabled it to engage with customers virtually and not drive demand through promotions. The company’s core RH business and solid performance of new galleries along with continued expansion of RH Hospitality despite adverse macro trends are encouraging. Also, its strategic initiatives to evolve RH from a home furnishings retailer to a luxury lifestyle brand over time will drive growth.

The company, a Zacks Rank #3 stock, has an expected earnings growth rate of 50.4% for fiscal 2021. This company has gained 80.3% in the past six months. RH has seen upward estimate revision of 2.6% and 3.4% for its fiscal 2021 and 2022 earnings, respectively, over the past 60 days.
Price and Consensus: RH

 

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