Although spike 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 persistent 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 as well as investments in merchandising of brands and digital marketing should lend support to Ethan Allen Interiors Inc. ( ETH Quick Quote ETH - Free Report) , Williams-Sonoma, Inc. ( WSM Quick Quote WSM - Free Report) , Tempur Sealy International, Inc. ( TPX Quick Quote TPX - Free Report) , RH ( RH Quick Quote RH - Free Report) and Fortune Brands Home & Security, Inc. ( FBHS Quick Quote FBHS - 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.
3 Trends Shaping the Future of the Retail-Home Furnishings Industry The industry, which is highly dependent on economic and U.S. housing market conditions, is expected to gain from solid momentum in the U.S. housing market. Continuous decline in mortgage rates has been driving new home sales, which in turn should continue providing a boost to home furnishing activity in the near term. Also, the U.S. administration’s major stimulus package to bolster the U.S. economy amid the ongoing coronavirus pandemic is expected to provide a much-needed impetus to the industry players. Solid Residential Market: Optimization of supply chain and improvement of e-commerce channels are expected to drive the top line. In fact, e-commerce came as a big rescuer for the retail sector amid this pandemic-induced uncertainty. This digital platform will continue to play a major role in the long term, as people are finding it more comfortable and safer shopping online. 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. Strong Digital Platform, Product Reinvention, & Marketing Moves: The home furnishings 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. Also, even though sales-building initiatives of the industry participants have been reaping positive 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 put a pressure on margins. Tariff-related woes are also likely to impact the industry in the near term. Stiff Competition & Tariff: Zacks Industry Rank Indicates Bright Prospects
The Zacks Retail-Home Furnishings industry is a nine-stock group within the broader Zacks
Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #20, 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 March 2021, the industry’s earnings estimates for 2021 and 2022 have been revised 7.3% and 3.5% upward, respectively. 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 broader Zacks Retail-Wholesale sector over the past year.
The industry has risen 200.2% compared with the S&P 500’s growth of 50.1% and the broader sector’s 38.5% 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 19.5X compared with the S&P 500’s 22.5X and the sector’s 32.2X.
Over the last five years, the industry has traded as high as 22.7X and as low as 11.4X, with the median being 16.2X, as the chart below shows. Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
5 Retail-Home Furnishings Stocks to Bet on
We have selected five stocks from the Zacks retail home furnishing sector that currently sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
. the complete list of today’s Zacks #1 Rank stocks here Ethan Allen Interiors Inc.: This Danbury, CT-based company operates as an interior design company, and manufacturer and retailer of home furnishings. Its wide array of offerings, strong network of retail design centers, and focus on interior design services as well as technology enhancement have been benefiting the company. This Zacks Rank #1 company’s earnings are expected to grow 334.6% in fiscal 2021. It has gained 71.1% in the past six months compared with the industry’s 64.2% rise. Ethan has seen upward estimate revision of 6.6% for fiscal 2021 earnings over the past seven days, depicting analysts’ optimism over the stock’s prospects. Price and Consensus: ETH 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. In addition to continued enhancement of the e-commerce channel, optimization of the supply chain and disciplined cost control are expected to drive growth. This Zacks Rank #1 company’s shares have gained 77.4% over the past six months. Earnings estimates for the current year and next have moved 1.9% and 0.6% north, respectively, over the past seven days. The company’s earnings are expected to grow 9.2% in fiscal 2021. 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 omni-channel distribution strategy’s success have been boosting Tempur’s presence. The company holds a Zacks Rank #2 and has an expected earnings growth rate of 39.3% for 2021. Shares have advanced 53.7% over the past six months. Tempur has seen upward estimate revision of 8.6% and 7% for its respective 2021 and 2022 bottom line over the past seven days. Price and Consensus: TPX RH: Headquartered in Corte Madera, CA, RH operates as a retailer of home furnishings. The company has been benefiting from 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, solid performance of new galleries and 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. This Zacks Rank #2 ranked stock has an expected earnings growth rate of 17.3% for fiscal 2021. This company has gained 91.3% in the past six months. RH has seen upward estimate revision of 0.5% for fiscal 2021 earnings over the past seven days. Price and Consensus: RH Fortune Brands Home & Security, Inc.: Headquartered in Deerfield, IL, this company provides home and security products for residential home repair, remodeling, new construction as well as security applications. In addition to a strong housing market backdrop, the company has been gaining strength from its ability to capture greater market share and profitable opportunities in an increasingly strong market for products. With attractive categories, strong channel position and increased investments, it remains well positioned to drive increasing value for stakeholders. The Zacks Rank #2 stock has an expected earnings growth rate of 18.9% for fiscal 2021. This company has gained 23.6% in the past six months, underperforming the industry. It has seen upward estimate revision of 4% for fiscal 2021 earnings over the past 60 days. Price and Consensus: FBHS