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5 Stocks From the Flourishing Retail Home Furnishing Industry
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Although continued investments in e-commerce and higher raw material costs might keep margins under pressure, solid housing market momentum, efficient cost management as well as 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 RH (RH - Free Report) , Williams-Sonoma, Inc. (WSM - Free Report) , Tempur Sealy International, Inc. (TPX - Free Report) , Haverty Furniture Companies, Inc. (HVT - Free Report) , and Ethan Allen Interiors Inc. (ETD - 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. The companies also 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
Solid Residential & R&R Markets: 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. Lower mortgage rates have been driving new home sales, which in turn should continue providing a boost to home furnishing activity in the near term. Meanwhile, the COVID-19 pandemic situation has encouraged consumers to take on more do-it-yourself or DIY projects and other home improvement projects. So, the industry stands to benefit from a solid rise in repair and remodeling activities.
Strong Digital Platform, Product Reinvention & Marketing Moves: Optimization of the supply chain and improvement of e-commerce channels are expected to drive the top line. In fact, e-commerce came to the rescue 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 to shop online. Product innovation plays a key role for market share gain in this industry. Companies aim at coming up with products, and collaborating with celebrated brands as well as 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.
Higher Input Costs, Stiff Competition & Labor Expenses: 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. The companies have been experiencing rising raw material costs in many of its product categories. Also, product shortages and manufacturing delays have been a cause of concern.
Meanwhile, 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. Even though sales-building initiatives of the industry participants have been reaping positive results, these involve high costs.
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 #61, which places it at the top 24% 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 impressive 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 June 2021, the industry’s earnings estimates for 2021 and 2022 have been revised 7.3% and 7.2% 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 81.7% compared with the S&P 500’s growth of 32.5%. The broader sector has declined 3.7% over this period.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings ratio, which is commonly used for valuing retail home furnishing stocks, the industry is currently trading at 16.4 compared with the S&P 500’s 21.8 and the sector’s 28.2.
Over the last five years, the industry has traded as high as 22.7X and as low as 11.4X, with the median being 16.1X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
5 Retail-Home Furnishings Stocks to Watch Out For
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 have also highlighted two other stocks carrying a Zacks Rank #3 (Hold) with solid prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.
Haverty Furniture Companies: This Atlanta, GA-based company operates as a specialty retailer of residential furniture and accessories. Higher inclination among customers toward purchase of in-stock merchandise with the waning of “pandemic patience” seems to be strengthening Haverty Furniture. The company has been benefiting from this trend and generating higher revenues despite challenges like product shortages, price increases, manufacturing delays, freight increases as well as mercurial cargo shipping.
This Zacks Rank #1 company’s earnings are expected to grow 163.3% in 2021. It has gained 31.2% in the year-to-date period compared with the industry’s 52.3% rally. Nonetheless, Haverty has seen upward estimate revision of 23.1% for 2021 earnings over the past 60 days, depicting analysts’ optimism over the stock’s prospects.
Price and Consensus: HVT
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 #2 company’s earnings are expected to grow 12.7% in fiscal 2022. It has gained 19.8% so far this year. Although shares have underperformed the industry, Ethan has seen an upward estimate revision of 6.8% for fiscal 2022 earnings over the past 30 days.
Price and Consensus: ETD
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 currently holds a Zacks Rank #2 and has an expected earnings growth rate of 69.1% for 2021. Shares have advanced 68.7% year to date. Tempur has seen an upward estimate revision of 14.5% for 2021 earnings over the past 60 days.
Price and Consensus: TPX
Williams-Sonoma: This is a San Francisco, CA-based multi-channel specialty retailer. The company has been benefiting from a solid housing market, focus on digital initiatives, higher e-commerce penetration and product introductions. E-commerce penetration accounted for 65% 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 #3 company’s shares have gained 80% year to date. Earnings estimates for the current year have moved 12.5% north over the past seven days. The bottom line is expected to grow 46.2% in fiscal 2021.
Price and Consensus: WSM
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 #3 ranked stock has an expected earnings growth rate of 29.1% for fiscal 2021. This company has gained 57.4% year to date. RH has seen upward estimate revision of 0.6% for fiscal 2021 earnings over the past 30 days.
Price and Consensus: RH
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5 Stocks From the Flourishing Retail Home Furnishing Industry
Although continued investments in e-commerce and higher raw material costs might keep margins under pressure, solid housing market momentum, efficient cost management as well as 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 RH (RH - Free Report) , Williams-Sonoma, Inc. (WSM - Free Report) , Tempur Sealy International, Inc. (TPX - Free Report) , Haverty Furniture Companies, Inc. (HVT - Free Report) , and Ethan Allen Interiors Inc. (ETD - 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. The companies also 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
Solid Residential & R&R Markets: 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. Lower mortgage rates have been driving new home sales, which in turn should continue providing a boost to home furnishing activity in the near term. Meanwhile, the COVID-19 pandemic situation has encouraged consumers to take on more do-it-yourself or DIY projects and other home improvement projects. So, the industry stands to benefit from a solid rise in repair and remodeling activities.
Strong Digital Platform, Product Reinvention & Marketing Moves: Optimization of the supply chain and improvement of e-commerce channels are expected to drive the top line. In fact, e-commerce came to the rescue 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 to shop online. Product innovation plays a key role for market share gain in this industry. Companies aim at coming up with products, and collaborating with celebrated brands as well as 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.
Higher Input Costs, Stiff Competition & Labor Expenses: 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. The companies have been experiencing rising raw material costs in many of its product categories. Also, product shortages and manufacturing delays have been a cause of concern.
Meanwhile, 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. Even though sales-building initiatives of the industry participants have been reaping positive results, these involve high costs.
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 #61, which places it at the top 24% 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 impressive 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 June 2021, the industry’s earnings estimates for 2021 and 2022 have been revised 7.3% and 7.2% 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 81.7% compared with the S&P 500’s growth of 32.5%. The broader sector has declined 3.7% over this period.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings ratio, which is commonly used for valuing retail home furnishing stocks, the industry is currently trading at 16.4 compared with the S&P 500’s 21.8 and the sector’s 28.2.
Over the last five years, the industry has traded as high as 22.7X and as low as 11.4X, with the median being 16.1X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
5 Retail-Home Furnishings Stocks to Watch Out For
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 have also highlighted two other stocks carrying a Zacks Rank #3 (Hold) with solid prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.
Haverty Furniture Companies: This Atlanta, GA-based company operates as a specialty retailer of residential furniture and accessories. Higher inclination among customers toward purchase of in-stock merchandise with the waning of “pandemic patience” seems to be strengthening Haverty Furniture. The company has been benefiting from this trend and generating higher revenues despite challenges like product shortages, price increases, manufacturing delays, freight increases as well as mercurial cargo shipping.
This Zacks Rank #1 company’s earnings are expected to grow 163.3% in 2021. It has gained 31.2% in the year-to-date period compared with the industry’s 52.3% rally. Nonetheless, Haverty has seen upward estimate revision of 23.1% for 2021 earnings over the past 60 days, depicting analysts’ optimism over the stock’s prospects.
Price and Consensus: HVT
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 #2 company’s earnings are expected to grow 12.7% in fiscal 2022. It has gained 19.8% so far this year. Although shares have underperformed the industry, Ethan has seen an upward estimate revision of 6.8% for fiscal 2022 earnings over the past 30 days.
Price and Consensus: ETD
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 currently holds a Zacks Rank #2 and has an expected earnings growth rate of 69.1% for 2021. Shares have advanced 68.7% year to date. Tempur has seen an upward estimate revision of 14.5% for 2021 earnings over the past 60 days.
Price and Consensus: TPX
Williams-Sonoma: This is a San Francisco, CA-based multi-channel specialty retailer. The company has been benefiting from a solid housing market, focus on digital initiatives, higher e-commerce penetration and product introductions. E-commerce penetration accounted for 65% 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 #3 company’s shares have gained 80% year to date. Earnings estimates for the current year have moved 12.5% north over the past seven days. The bottom line is expected to grow 46.2% in fiscal 2021.
Price and Consensus: WSM
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 #3 ranked stock has an expected earnings growth rate of 29.1% for fiscal 2021. This company has gained 57.4% year to date. RH has seen upward estimate revision of 0.6% for fiscal 2021 earnings over the past 30 days.
Price and Consensus: RH