Although continued investments in e-commerce, supply chain bottlenecks and higher raw material costs might keep margins under pressure, consumers’ increasing desire for shopping, continued 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 Williams-Sonoma, Inc. ( WSM Quick Quote WSM - Free Report) , Tempur Sealy International, Inc. ( TPX Quick Quote TPX - Free Report) , The Lovesac Company ( LOVE Quick Quote LOVE - Free Report) , and Ethan Allen Interiors Inc. ( ETD Quick Quote 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
: The industry, which is highly dependent on economic and U.S. housing market conditions, is expected to gain from the solid momentum of 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 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. Solid Residential & R&R Markets, Higher Consumer Spending Despite the resurgence in COVID-19 infections and reduced fiscal stimulus, U.S. consumer confidence improved further in December 2021. This suggests that the economy is expected to continue to grow in 2022 amid headwinds like rising prices and the emergence of the Omicron variant. : 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. Strong Digital Platform, Product Reinvention & Marketing Moves : Industry players have been grappling with supply chain bottlenecks. Due to supply issues across the world, the companies have been witnessing some inventory delays, product shortages and manufacturing delays. 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. Supply-Chain Issues, Stiff Competition & Labor Expenses 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 outperform the bottom 50% by a factor of more than 2 to 1. 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 Sector, Lags S&P 500
The Zacks Retail-Home Furnishings industry has outperformed the broader Zacks Retail-Wholesale sector but has lagged the Zacks S&P 500 composite over the past year.
The industry has risen 15.8% compared with the S&P 500’s growth of 25%. The broader sector has declined 11.9% over this period. One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is commonly used for valuing retail home furnishing stocks, the industry is currently trading at 12.6 compared with the S&P 500’s 21.5 and the sector’s 25.6.
Over the last five years, the industry has traded as high as 22.7X and as low as 11.4X, with the median being 15.7X, as the chart below shows. Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
4 Retail-Home Furnishings Stocks to Watch
We have selected two 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.
Lovesac: This Stamford, CT-based company retails home furnishing products like alternative furniture stores, sectionals, bean bags, bean bag chairs and other accessories. Lovesac has been experiencing profitable growth across all sales channels. For third-quarter fiscal 2022, showroom sales grew nearly 70% and internet sales increased almost 40%. Its recently launched Mobile Concierge service and unique business model with a concentrated sku count and manufacturing spread across multiple geographies bode well. LOVE currently flaunts a Zacks Rank #1 and has an expected earnings growth rate of 42% for fiscal 2023. Its shares have advanced 10.7% over the past year. Lovesac has seen an upward estimate revision of 57.9% for fiscal 2023 earnings over the past 60 days. Price and Consensus: LOVE Tempur Sealy International.: 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. TPX currently holds a Zacks Rank #2 and has an expected earnings growth rate of 17.2% for 2022. Its shares have advanced 55.3% over the past year. Tempur has seen an upward estimate revision of 0.8% for 2022 earnings over the past 60 days. Price and Consensus: TPX 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. Earnings of Ethan Allen, a Zacks Rank #3 company, are expected to grow 30.8% for fiscal 2022. It has gained 14.6% over the past year. Price and Consensus: ETD Williams-Sonoma: This is a San Francisco, CA-based multi-channel specialty retailer. Williams-Sonoma has been benefiting from a solid housing market, focus on digital initiatives, higher e-commerce penetration and product introductions. E-commerce penetration accounted for 67% of total revenues for third-quarter fiscal 2021. In addition to continued enhancement of the e-commerce channel, optimization of the supply chain and disciplined cost control are expected to drive growth. Williams-Sonoma, a Zacks Rank #3 company, has gained 21.2% over the past year. Earnings estimates for the current year have moved 3% north over the past seven days. Price and Consensus: WSM