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3 Stocks to Watch From the Challenging Furniture Industry
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Indeed, higher interest rates, complications from the banking crisis and relatively low consumer confidence levels will continue to pose challenges for the Zacks Furniture industry in the near term. Again, continued investments in e-commerce and intense competition are added headwinds. Nonetheless, increasing investments in technological advancements and solutions are expected to drive the industry’s growth. Importantly, product innovation, along with accretive buyouts, should favor the furniture industry in expanding its global reach. Apart from these tailwinds, efficient cost management should lend support to industry players like SharkNinja, Inc. (SN - Free Report) , MillerKnoll, Inc. (MLKN - Free Report) and American Woodmark Corporation (AMWD - 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.
4 Trends Shaping the Furniture Industry's Future
Challenging Macroeconomic Environment: The dynamic macroeconomic and geopolitical environments have been putting pressure on end markets and thereby impacting the companies’ performances. Spending on home improvements and repairs is expected to be soft in the near term, given several macroeconomic challenges, such as slowing sales of existing homes and rising interest rates. The slowdown in the homebuilding industry, retail sales of building materials, and renovation permits point to a soft environment for residential remodeling, which would impact the furniture industry players. Additionally, complications from the banking crisis and relatively low consumer confidence levels add to the headwinds.
Higher Expenses: The industry players are engaged in active competition to enlarge their market share. In pursuit of this goal, industry players are intensifying their digital presence and refining shipping capabilities, leading to heightened investments. Also, the furniture industry is highly competitive, with home furnishing retailers, department stores and antique dealers giving a hard time. The companies need to make incremental investments to address an expanding omnichannel 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.
Alongside these challenges, the prospect of rising SG&A rates, increased labor and occupancy costs, and elevated expenses related to marketing and stores could place a strain on profit margins. 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. Notably, the industry players are distressed by rising logistic expenses. The labor market has struggled with the limited availability of labor, which is pushing up labor costs.
Innovation, Digital Marketing: Product innovation plays a decisive factor in 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, emphasizing digital marketing, better merchandising, store remodeling and loyalty programs. These companies are utilizing advanced technology to enhance the overall customer experience, optimize their operations, and provide innovative solutions. Precisely, companies that make strategic investments in digital innovation are poised to navigate challenges successfully and emerge as industry leaders.
Acquisitions & Focus on Public Sector: The industry players are pursuing acquisitions to broaden their product portfolio and expand their geographic footprint as well as market share. Additionally, they are prioritizing the diversification of their business portfolios, expanding their global footprint, and strengthening their positions in resilient sectors such as healthcare and the public sector.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Furniture industry is a 11-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #215, which places it at the bottom 14% 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 bleak 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 bottom 50% of the Zacks-ranked industries is a result of a tepid 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 September 2023, the industry’s earnings estimates for 2023 and 2024 have decreased 4.5% and 3.2%, respectively.
Despite the industry’s blurred 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 Lags Sector, S&P 500
The Zacks Furniture industry has underperformed the broader Zacks Consumer Discretionary sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has lost 16.9% against the broader sector’s 5.7% rise and the S&P 500’s increase of 13.2%.
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 12.5X compared with the S&P 500’s 19.2X and the sector’s 16.7X.
Over the past five years, the industry has traded as high as 19.4X and as low as 10X, with the median being 15X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 Furniture Stocks to Watch
We have selected three stocks from the Zacks universe of furniture stocks that currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) and have impressive growth prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.
MillerKnoll: Based in Zeeland, MI, this company researches, designs, manufactures, and distributes interior furnishings worldwide. MLKN has placed a strong emphasis on diversifying its business portfolio, extending its global presence, and bolstering its position in robust sectors like healthcare and the public sector. The company is harnessing advanced technology to elevate the overall customer experience, streamline its operations, and deliver cutting-edge solutions. Furthermore, MLKN is deepening its partnerships with dealers to ensure flawless communication and optimize its operational efficiency.
MLKN — a Zacks Rank #1 stock — gained 22.9% year to date (YTD) against the industry’s 10.1% decline. Earnings estimates for fiscal 2024 and 2025 have increased to $2.07 per share (from $1.80) and $2.62 per share (from $2.53), respectively, over the past 60 days, depicting analysts’ optimism about the company’s prospects. MLKN’s earnings topped the consensus mark in all the last four quarters, with the average surprise being 32.3%.
Price and Consensus: MLKN
SharkNinja: This company, headquartered in Needham, MA, operates as a product design and technology firm, providing diverse solutions for global consumers. Its product lineup encompasses cleaning appliances such as corded and cordless vacuums, along with other floorcare products. The company has experienced positive outcomes through its three-pronged growth strategy, which involves increasing market share in existing sectors, venturing into new and related categories, and expanding internationally. Significant contributions to its revenue growth have been observed in the cooking and beverage appliances, food preparation appliances, and other product categories. Additionally, ongoing favorable conditions in the supply chain, efforts in cost optimization, and a beneficial pricing and promotional mix have further propelled the company's success.
SN — a Zacks Rank #2 stock — gained 15.7% since its inception on the New York Stock Exchange in 2023. Earnings estimates for 2023 have increased to $3.13 per share from $2.99 over the past 30 days. This company surpassed earnings estimate in the last reported quarter, the surprise being 15.9%. It also carries an impressive VGM Score of B. This helps to identify stocks with the most attractive value, growth and momentum.
Price and Consensus: SN
American Woodmark: This Winchester, VA-based company is one of the largest manufacturers of kitchen and bath cabinets. Amid continued inflationary pressures, and labor and logistics challenges, the company has been witnessing strong sales growth in its new construction channel. A solid backlog level, higher investments in production capability and capacity, outsourcing staffing additions and productivity improvements are expected to drive growth for American Woodmark.
AMWD — a Zacks Rank #3 stock — gained 50.3% YTD. Earnings estimates for fiscal 2024 have increased to $8.17 per share from $7.99 over the past 30 days. The estimated figure calls for 7.2% year-over-year growth. This company surpassed earnings estimates in three of the trailing four quarters but missed on one occasion, with the average surprise being 25.7%. It also carries an impressive VGM Score of A.
Price and Consensus: AMWD
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3 Stocks to Watch From the Challenging Furniture Industry
Indeed, higher interest rates, complications from the banking crisis and relatively low consumer confidence levels will continue to pose challenges for the Zacks Furniture industry in the near term. Again, continued investments in e-commerce and intense competition are added headwinds. Nonetheless, increasing investments in technological advancements and solutions are expected to drive the industry’s growth. Importantly, product innovation, along with accretive buyouts, should favor the furniture industry in expanding its global reach. Apart from these tailwinds, efficient cost management should lend support to industry players like SharkNinja, Inc. (SN - Free Report) , MillerKnoll, Inc. (MLKN - Free Report) and American Woodmark Corporation (AMWD - 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.
4 Trends Shaping the Furniture Industry's Future
Challenging Macroeconomic Environment: The dynamic macroeconomic and geopolitical environments have been putting pressure on end markets and thereby impacting the companies’ performances. Spending on home improvements and repairs is expected to be soft in the near term, given several macroeconomic challenges, such as slowing sales of existing homes and rising interest rates. The slowdown in the homebuilding industry, retail sales of building materials, and renovation permits point to a soft environment for residential remodeling, which would impact the furniture industry players. Additionally, complications from the banking crisis and relatively low consumer confidence levels add to the headwinds.
Higher Expenses: The industry players are engaged in active competition to enlarge their market share. In pursuit of this goal, industry players are intensifying their digital presence and refining shipping capabilities, leading to heightened investments. Also, the furniture industry is highly competitive, with home furnishing retailers, department stores and antique dealers giving a hard time. The companies need to make incremental investments to address an expanding omnichannel 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.
Alongside these challenges, the prospect of rising SG&A rates, increased labor and occupancy costs, and elevated expenses related to marketing and stores could place a strain on profit margins. 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. Notably, the industry players are distressed by rising logistic expenses. The labor market has struggled with the limited availability of labor, which is pushing up labor costs.
Innovation, Digital Marketing: Product innovation plays a decisive factor in 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, emphasizing digital marketing, better merchandising, store remodeling and loyalty programs. These companies are utilizing advanced technology to enhance the overall customer experience, optimize their operations, and provide innovative solutions. Precisely, companies that make strategic investments in digital innovation are poised to navigate challenges successfully and emerge as industry leaders.
Acquisitions & Focus on Public Sector: The industry players are pursuing acquisitions to broaden their product portfolio and expand their geographic footprint as well as market share. Additionally, they are prioritizing the diversification of their business portfolios, expanding their global footprint, and strengthening their positions in resilient sectors such as healthcare and the public sector.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Furniture industry is a 11-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #215, which places it at the bottom 14% 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 bleak 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 bottom 50% of the Zacks-ranked industries is a result of a tepid 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 September 2023, the industry’s earnings estimates for 2023 and 2024 have decreased 4.5% and 3.2%, respectively.
Despite the industry’s blurred 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 Lags Sector, S&P 500
The Zacks Furniture industry has underperformed the broader Zacks Consumer Discretionary sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has lost 16.9% against the broader sector’s 5.7% rise and the S&P 500’s increase of 13.2%.
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 12.5X compared with the S&P 500’s 19.2X and the sector’s 16.7X.
Over the past five years, the industry has traded as high as 19.4X and as low as 10X, with the median being 15X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
3 Furniture Stocks to Watch
We have selected three stocks from the Zacks universe of furniture stocks that currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) and have impressive growth prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.
MillerKnoll: Based in Zeeland, MI, this company researches, designs, manufactures, and distributes interior furnishings worldwide. MLKN has placed a strong emphasis on diversifying its business portfolio, extending its global presence, and bolstering its position in robust sectors like healthcare and the public sector. The company is harnessing advanced technology to elevate the overall customer experience, streamline its operations, and deliver cutting-edge solutions. Furthermore, MLKN is deepening its partnerships with dealers to ensure flawless communication and optimize its operational efficiency.
MLKN — a Zacks Rank #1 stock — gained 22.9% year to date (YTD) against the industry’s 10.1% decline. Earnings estimates for fiscal 2024 and 2025 have increased to $2.07 per share (from $1.80) and $2.62 per share (from $2.53), respectively, over the past 60 days, depicting analysts’ optimism about the company’s prospects. MLKN’s earnings topped the consensus mark in all the last four quarters, with the average surprise being 32.3%.
Price and Consensus: MLKN
SharkNinja: This company, headquartered in Needham, MA, operates as a product design and technology firm, providing diverse solutions for global consumers. Its product lineup encompasses cleaning appliances such as corded and cordless vacuums, along with other floorcare products. The company has experienced positive outcomes through its three-pronged growth strategy, which involves increasing market share in existing sectors, venturing into new and related categories, and expanding internationally. Significant contributions to its revenue growth have been observed in the cooking and beverage appliances, food preparation appliances, and other product categories. Additionally, ongoing favorable conditions in the supply chain, efforts in cost optimization, and a beneficial pricing and promotional mix have further propelled the company's success.
SN — a Zacks Rank #2 stock — gained 15.7% since its inception on the New York Stock Exchange in 2023. Earnings estimates for 2023 have increased to $3.13 per share from $2.99 over the past 30 days. This company surpassed earnings estimate in the last reported quarter, the surprise being 15.9%. It also carries an impressive VGM Score of B. This helps to identify stocks with the most attractive value, growth and momentum.
Price and Consensus: SN
American Woodmark: This Winchester, VA-based company is one of the largest manufacturers of kitchen and bath cabinets. Amid continued inflationary pressures, and labor and logistics challenges, the company has been witnessing strong sales growth in its new construction channel. A solid backlog level, higher investments in production capability and capacity, outsourcing staffing additions and productivity improvements are expected to drive growth for American Woodmark.
AMWD — a Zacks Rank #3 stock — gained 50.3% YTD. Earnings estimates for fiscal 2024 have increased to $8.17 per share from $7.99 over the past 30 days. The estimated figure calls for 7.2% year-over-year growth. This company surpassed earnings estimates in three of the trailing four quarters but missed on one occasion, with the average surprise being 25.7%. It also carries an impressive VGM Score of A.
Price and Consensus: AMWD