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3 Furniture Stocks Worth Watching Despite Industry Headwinds
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The Zacks Furniture industry has been bearing the brunt of supply-chain disruptions, greater inflation, continued investments in e-commerce, macroeconomic and geopolitical uncertainty, and intense competition. However, increasing investments in home improvement and remodeling activities, accompanied with technological advancements and solutions, are expected to drive the industry’s growth. Also, product innovation, as well as accretive buyouts, should favor the furniture industry in expanding its global reach. In addition, efficient cost management should lend support to industry players like WillScot Mobile Mini Holdings Corp. (WSC - Free Report) , La-Z-Boy Incorporated (LZB - Free Report) and Virco Mfg. Corporation (VIRC - Free Report) .
Industry Description
The Zacks Furniture industry comprises manufacturers, designers and marketers of residential as well as commercial furnishing solutions. Some of the companies provide kitchen and bath cabinets as well as various engineered components and products in the United States, along with international markets. A few industry players also offer specialty rental services such as modular and portable storage solutions as well as modular space and portable storage solutions. They are involved in designing and producing a wide variety of engineered components and products for homes, offices and automobiles. The industry players cater to different sectors, namely, construction, energy, healthcare, security, government, retail, commercial, education and transportation.
3 Trends Shaping the Furniture Industry's Future
Supply-Chain Issues, Rising Inflation & Higher Expenses: The companies have been witnessing supply-chain disruptions, especially in chemicals, semiconductors, labor and transportation, which are constraining volume growth. As such, consumers are increasingly concerned about rising inflation and many expect inflation to outpace income growth. This would be a risk to spending, which makes up two-thirds of the economy. The industry players are distressed by rising raw material prices and logistic expenses. The labor market has also struggled with limited availability of labor, which is driving labor costs.
Also, the furniture industry is highly competitive, with home furnishing retailers, department stores and antique dealers giving a hard time. Again, companies need to make incremental investments to address an expanding omni-channel environment, as shoppers tend to look for online options. Growth in online sales may continue to dent traditional furniture retailers’ market share as brands such as Etsy, Things Remembered, Costco and Amazon are finding their way into the market.
Soft Growth for Home Repair & Remodeling Activities: Spending for home improvements and repairs is expected to be soft in the near term, given several macroeconomic challenges comprising slowing sales of existing homes, rising mortgage interest rates, and home price appreciation. The slowdown in homebuilding industry, retail sales of building materials, and renovation permits point to a soft environment for residential remodeling, thereby impacting the furniture industry players as well.
Innovation, Digital Marketing & Acquisitions: Product innovation plays a decisive factor for market share gain in this industry. Players are investing in new products to improve the product mix in a competitive landscape and drive top-line growth. Also, millennials represent the largest consumer cohort in the furniture market. More money in the hands of this largest and most-active generation of homebuyers should keep demand elevated. Customer experience is getting enhanced by innovative marketing techniques, with emphasis on digital marketing, better merchandising, store remodeling and loyalty programs. Furthermore, the industry players are pursuing acquisitions to broaden their product portfolio and expand their geographic footprint as well as market share.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Furniture industry is an eight-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #210, which places it at the bottom 16% 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 tepid 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.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the bleak earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since May 2022, the industry’s earnings estimates for 2022 and 2023 have been revised 3.6% and 6.8% downward, respectively.
Despite the industry’s gloomy near-term view, we will present a few stocks that one may consider adding to their portfolio. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Outperforms S&P 500 & Sector
The Zacks Furniture industry has outperformed the Zacks S&P 500 composite and the broader Zacks Consumer Discretionary sector over the past year.
Over this period, the industry has lost 16.8% compared with the broader sector’s 44.6% decline and the S&P 500’s decrease of 18.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), which is commonly used for valuing furniture stocks, the industry is currently trading at 13.1X compared with the S&P 500’s 15.9X and the sector’s 15.4X.
Over the past five years, the industry has traded as high as 19.3X and as low as 9.4X, with the median being 14.8X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 Furniture Stocks to Watch Now
We have selected one stock from the Zacks universe of furniture stocks that currently carries a Zacks Rank #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 (Strong Buy) stocks here.
Virco Mfg.: Headquartered in Torrance, CA, this company designs, produces and distributes furniture in the United States. Although the company has been reeling under material cost increases, and higher costs associated with materials, freight and logistics, VIRC has been witnessing higher demand as stimulus funding aids recovery in the school furniture market. Higher shipments owing to efforts to increase factory output continue to deliver high-quality, innovative equipment and furniture to schools across the United States. Higher revenues enabled VIRC to witness greater operating leverage, thereby increasing profitability. A higher funding level for public schools, as well as the competitive advantage it has from its domestic production and distribution model, has been enabling VIRC to consistently take market share from overseas competitors.
VIRC’s shares have gained 22.3% in the past year. Earnings of VIRC — a Zacks Rank #2 company — are expected to grow 174.7% in fiscal 2023. Earnings estimates for fiscal 2023 have increased to 71 cents from 39 cents over the past seven days.
Price and Consensus: VIRC
WillScot Mobile Mini Holdings: This Phoenix, AZ-based company provides modular space and portable storage solutions. The company is benefiting from continuous product innovation, solid segmental results and transformation of the legacy WillScot business into Mobile Mini's SAP platform. Record order backlog, broad-based end-market strength and growth initiatives such as pricing, valued-added products, cross-selling, and acquisitions have been driving growth. Despite macroeconomic uncertainties, WSC expects robust demand to continue into 2023 given order backlog, prospects for infrastructure investment, a net positive inflationary environment, the recent acquisitions and a robust pipeline.
WillScot, a Zacks Rank #3 stock, has gained 23% over the past year. The company has an expected earnings growth rate of 76.3% for 2022 and 31.5% for 2023. Earnings estimates for 2022 and 2023 have increased to $1.34 (from $1.31) and to $1.77 (from $1.71) over the past 60 days.
Price and Consensus: WSC
La-Z-Boy: Based in Monroe, MI, this company manufactures, markets, imports, exports, distributes, and retails upholstery furniture products, accessories, and casegoods furniture products. LZB has been navigating well through challenges like escalating commodity and freight costs with the help of higher pricing, strong brand presence, vast distribution through multiple channels and strategic investments across the business to drive market share gains. It remains focused on navigating the near-term volatile environment while strengthening business for the long term with the Century Vision strategy.
La-Z-Boy’s shares have dropped 34% in the past year. Nonetheless, earnings of La-Z-Boy — a Zacks Rank #3 company — are expected to grow 4.8% in fiscal 2023. Earnings estimates for fiscal 2023 have increased to $3.26 from $3.25 over the past 30 days.
Price and Consensus: LZB
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3 Furniture Stocks Worth Watching Despite Industry Headwinds
The Zacks Furniture industry has been bearing the brunt of supply-chain disruptions, greater inflation, continued investments in e-commerce, macroeconomic and geopolitical uncertainty, and intense competition. However, increasing investments in home improvement and remodeling activities, accompanied with technological advancements and solutions, are expected to drive the industry’s growth. Also, product innovation, as well as accretive buyouts, should favor the furniture industry in expanding its global reach. In addition, efficient cost management should lend support to industry players like WillScot Mobile Mini Holdings Corp. (WSC - Free Report) , La-Z-Boy Incorporated (LZB - Free Report) and Virco Mfg. Corporation (VIRC - Free Report) .
Industry Description
The Zacks Furniture industry comprises manufacturers, designers and marketers of residential as well as commercial furnishing solutions. Some of the companies provide kitchen and bath cabinets as well as various engineered components and products in the United States, along with international markets. A few industry players also offer specialty rental services such as modular and portable storage solutions as well as modular space and portable storage solutions. They are involved in designing and producing a wide variety of engineered components and products for homes, offices and automobiles. The industry players cater to different sectors, namely, construction, energy, healthcare, security, government, retail, commercial, education and transportation.
3 Trends Shaping the Furniture Industry's Future
Supply-Chain Issues, Rising Inflation & Higher Expenses: The companies have been witnessing supply-chain disruptions, especially in chemicals, semiconductors, labor and transportation, which are constraining volume growth. As such, consumers are increasingly concerned about rising inflation and many expect inflation to outpace income growth. This would be a risk to spending, which makes up two-thirds of the economy. The industry players are distressed by rising raw material prices and logistic expenses. The labor market has also struggled with limited availability of labor, which is driving labor costs.
Also, the furniture industry is highly competitive, with home furnishing retailers, department stores and antique dealers giving a hard time. Again, companies need to make incremental investments to address an expanding omni-channel environment, as shoppers tend to look for online options. Growth in online sales may continue to dent traditional furniture retailers’ market share as brands such as Etsy, Things Remembered, Costco and Amazon are finding their way into the market.
Soft Growth for Home Repair & Remodeling Activities: Spending for home improvements and repairs is expected to be soft in the near term, given several macroeconomic challenges comprising slowing sales of existing homes, rising mortgage interest rates, and home price appreciation. The slowdown in homebuilding industry, retail sales of building materials, and renovation permits point to a soft environment for residential remodeling, thereby impacting the furniture industry players as well.
Innovation, Digital Marketing & Acquisitions: Product innovation plays a decisive factor for market share gain in this industry. Players are investing in new products to improve the product mix in a competitive landscape and drive top-line growth. Also, millennials represent the largest consumer cohort in the furniture market. More money in the hands of this largest and most-active generation of homebuyers should keep demand elevated. Customer experience is getting enhanced by innovative marketing techniques, with emphasis on digital marketing, better merchandising, store remodeling and loyalty programs. Furthermore, the industry players are pursuing acquisitions to broaden their product portfolio and expand their geographic footprint as well as market share.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Furniture industry is an eight-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #210, which places it at the bottom 16% 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 tepid 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.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the bleak earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since May 2022, the industry’s earnings estimates for 2022 and 2023 have been revised 3.6% and 6.8% downward, respectively.
Despite the industry’s gloomy near-term view, we will present a few stocks that one may consider adding to their portfolio. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Outperforms S&P 500 & Sector
The Zacks Furniture industry has outperformed the Zacks S&P 500 composite and the broader Zacks Consumer Discretionary sector over the past year.
Over this period, the industry has lost 16.8% compared with the broader sector’s 44.6% decline and the S&P 500’s decrease of 18.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), which is commonly used for valuing furniture stocks, the industry is currently trading at 13.1X compared with the S&P 500’s 15.9X and the sector’s 15.4X.
Over the past five years, the industry has traded as high as 19.3X and as low as 9.4X, with the median being 14.8X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 Furniture Stocks to Watch Now
We have selected one stock from the Zacks universe of furniture stocks that currently carries a Zacks Rank #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 (Strong Buy) stocks here.
Virco Mfg.: Headquartered in Torrance, CA, this company designs, produces and distributes furniture in the United States. Although the company has been reeling under material cost increases, and higher costs associated with materials, freight and logistics, VIRC has been witnessing higher demand as stimulus funding aids recovery in the school furniture market. Higher shipments owing to efforts to increase factory output continue to deliver high-quality, innovative equipment and furniture to schools across the United States. Higher revenues enabled VIRC to witness greater operating leverage, thereby increasing profitability. A higher funding level for public schools, as well as the competitive advantage it has from its domestic production and distribution model, has been enabling VIRC to consistently take market share from overseas competitors.
VIRC’s shares have gained 22.3% in the past year. Earnings of VIRC — a Zacks Rank #2 company — are expected to grow 174.7% in fiscal 2023. Earnings estimates for fiscal 2023 have increased to 71 cents from 39 cents over the past seven days.
Price and Consensus: VIRC
WillScot Mobile Mini Holdings: This Phoenix, AZ-based company provides modular space and portable storage solutions. The company is benefiting from continuous product innovation, solid segmental results and transformation of the legacy WillScot business into Mobile Mini's SAP platform. Record order backlog, broad-based end-market strength and growth initiatives such as pricing, valued-added products, cross-selling, and acquisitions have been driving growth. Despite macroeconomic uncertainties, WSC expects robust demand to continue into 2023 given order backlog, prospects for infrastructure investment, a net positive inflationary environment, the recent acquisitions and a robust pipeline.
WillScot, a Zacks Rank #3 stock, has gained 23% over the past year. The company has an expected earnings growth rate of 76.3% for 2022 and 31.5% for 2023. Earnings estimates for 2022 and 2023 have increased to $1.34 (from $1.31) and to $1.77 (from $1.71) over the past 60 days.
Price and Consensus: WSC
La-Z-Boy: Based in Monroe, MI, this company manufactures, markets, imports, exports, distributes, and retails upholstery furniture products, accessories, and casegoods furniture products. LZB has been navigating well through challenges like escalating commodity and freight costs with the help of higher pricing, strong brand presence, vast distribution through multiple channels and strategic investments across the business to drive market share gains. It remains focused on navigating the near-term volatile environment while strengthening business for the long term with the Century Vision strategy.
La-Z-Boy’s shares have dropped 34% in the past year. Nonetheless, earnings of La-Z-Boy — a Zacks Rank #3 company — are expected to grow 4.8% in fiscal 2023. Earnings estimates for fiscal 2023 have increased to $3.26 from $3.25 over the past 30 days.
Price and Consensus: LZB