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3 Stocks to Watch From the Challenging Furniture Industry
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As consumer confidence dwindles and economic uncertainty persists, individuals are likely to tighten their purse strings, leading to decreased spending on non-essential items like furniture and home furnishings. Also, consumers’ cautious approach for future business conditions is a concern for the Zacks Furniture industry. Apart from high interest rates adding to the financial burden, businesses in the industry have also been experiencing high expenses related to labor. Also, continued investments in e-commerce and intense competition are added headwinds.
Nonetheless, increasing investments in technological advancements and solutions, product innovation, efficient cost management along with accretive buyouts should favor the furniture industry in expanding its global reach for industry players like American Woodmark Corporation (AMWD - Free Report) , Sleep Number Corporation (SNBR - Free Report) and Flexsteel Industries, Inc. (FLXS - 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
High Rates & Dwindling Consumer Confidence: The furniture industry in the United States is feeling the pinch as consumer confidence hits a new low and interest rates remain at their highest level in over two decades. With the Federal Reserve holding rates steady between 5.25% and 5.5% since August 2023, the sector faces significant challenges. Despite initial hopes for rate cuts, the Fed's recent decision to maintain current rates due to concerns about inflation has put further strain on consumers. This is echoed in the sales report. Sales at furniture and home furnishing stores dropped 6.1% in March compared to the previous year, marking one of the most challenged retail sectors tracked by the U.S. government. While this decline was less severe than the previous month, it reflects a broader trend of consumer caution in the face of rising interest rates.
Consumer confidence, a key indicator of economic health, has also taken a hit. In April, the Conference Board reported that its consumer confidence index fell to 97.0, the lowest level since July 2022. Worries about the labor market and income weighed heavily on consumers, leading to a more pessimistic outlook on short-term business conditions. This sentiment is further reflected in consumers' expectations for the future. According to the report, the percentage of consumers anticipating an improvement in business conditions decreased from 14.3% in March to 12.8%. Conversely, those expecting business conditions to worsen increased from 18.5% to 19.9%.
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 having 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. Notably, 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. The company and its peers are expected to benefit from strong global trends in infrastructure modernization.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Furniture industry is an 11-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #231, which places it at the bottom 8% 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 lower 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 March 2024, the industry’s earnings estimates for 2024 have decreased to $2.29 from $2.31 per share.
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 Outperforms Sector, Lags S&P 500
The Zacks Furniture industry has outperformed the broader Zacks Consumer Discretionary sector but lagged the Zacks S&P 500 Composite over the past year.
Over this period, the industry has gained 20.3% compared with the broader sector’s 3.3% rise. The Zacks S&P 500 Composite has gained 24.5% over this period.
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 20.2X and the sector’s 16.2X.
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 Keep an Eye On
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.
Sleep Number: Headquartered in Minneapolis, MN, this company provides sleep solutions and services in the United States. It has been reaping benefits from solid demand for smart beds. It has been accelerating strategic initiatives, strengthening competitive advantages, and creating meaningful value for customers, teams, business partners as well as shareholders.
SNBR — a Zacks Rank #1 stock — gained 43.8% in the past three months. Loss estimates for 2024 have narrowed down to 42 cents per share (from 46 cents) over the past seven days. SNBR earnings topped the consensus mark in three of the last four quarters, missed on one occasion, with the average surprise being 96%. It also has a favorable VGM Score of A, making it a potentially interesting investment opportunity.
Price and Consensus: SNBR
Flexsteel Industries: Based in Dubuque, IA, Flexsteel is a manufacturer, importer and online marketer of upholstered furniture for residential and contract markets in the United States. Despite ongoing challenges in the industry, primarily stemming from changes in consumer spending preferences away from home furnishings, the company has effectively managed its operations. It has capitalized on sustained productivity and cost-saving measures, maintained pricing discipline, and actively managed its product portfolio to its advantage. The company is expected to benefit from its growth strategy and new product introductions.
FLXS — a Zacks Rank #2 stock — gained 126.4% in the past year. Earnings estimates for fiscal 2024 have increased to $2.09 per share (from $1.95) over the past seven days, depicting analysts’ optimism about the company’s prospects. The estimated figure indicates 140.2% year-over-year growth. FLXS earnings topped the consensus mark in two of the last four quarters, missed on one occasion and met on another, with the average negative surprise being 4.8%. It has a favorable VGM Score of A.
Price and Consensus: FLXS
American Woodmark: This Winchester, VA-based company is one of the largest manufacturers of kitchen and bath cabinets. Amid slow demand conditions, 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 84% over the past year. The Zacks Consensus Estimate for fiscal 2024 calls for 12.9% year-over-year growth. This company surpassed earnings estimates in all the trailing four quarters, with the average surprise being 41.3%. 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
As consumer confidence dwindles and economic uncertainty persists, individuals are likely to tighten their purse strings, leading to decreased spending on non-essential items like furniture and home furnishings. Also, consumers’ cautious approach for future business conditions is a concern for the Zacks Furniture industry. Apart from high interest rates adding to the financial burden, businesses in the industry have also been experiencing high expenses related to labor. Also, continued investments in e-commerce and intense competition are added headwinds.
Nonetheless, increasing investments in technological advancements and solutions, product innovation, efficient cost management along with accretive buyouts should favor the furniture industry in expanding its global reach for industry players like American Woodmark Corporation (AMWD - Free Report) , Sleep Number Corporation (SNBR - Free Report) and Flexsteel Industries, Inc. (FLXS - 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
High Rates & Dwindling Consumer Confidence: The furniture industry in the United States is feeling the pinch as consumer confidence hits a new low and interest rates remain at their highest level in over two decades. With the Federal Reserve holding rates steady between 5.25% and 5.5% since August 2023, the sector faces significant challenges. Despite initial hopes for rate cuts, the Fed's recent decision to maintain current rates due to concerns about inflation has put further strain on consumers. This is echoed in the sales report. Sales at furniture and home furnishing stores dropped 6.1% in March compared to the previous year, marking one of the most challenged retail sectors tracked by the U.S. government. While this decline was less severe than the previous month, it reflects a broader trend of consumer caution in the face of rising interest rates.
Consumer confidence, a key indicator of economic health, has also taken a hit. In April, the Conference Board reported that its consumer confidence index fell to 97.0, the lowest level since July 2022. Worries about the labor market and income weighed heavily on consumers, leading to a more pessimistic outlook on short-term business conditions. This sentiment is further reflected in consumers' expectations for the future. According to the report, the percentage of consumers anticipating an improvement in business conditions decreased from 14.3% in March to 12.8%. Conversely, those expecting business conditions to worsen increased from 18.5% to 19.9%.
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 having 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. Notably, 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. The company and its peers are expected to benefit from strong global trends in infrastructure modernization.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Furniture industry is an 11-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #231, which places it at the bottom 8% 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 lower 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 March 2024, the industry’s earnings estimates for 2024 have decreased to $2.29 from $2.31 per share.
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 Outperforms Sector, Lags S&P 500
The Zacks Furniture industry has outperformed the broader Zacks Consumer Discretionary sector but lagged the Zacks S&P 500 Composite over the past year.
Over this period, the industry has gained 20.3% compared with the broader sector’s 3.3% rise. The Zacks S&P 500 Composite has gained 24.5% over this period.
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 20.2X and the sector’s 16.2X.
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 Keep an Eye On
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.
Sleep Number: Headquartered in Minneapolis, MN, this company provides sleep solutions and services in the United States. It has been reaping benefits from solid demand for smart beds. It has been accelerating strategic initiatives, strengthening competitive advantages, and creating meaningful value for customers, teams, business partners as well as shareholders.
SNBR — a Zacks Rank #1 stock — gained 43.8% in the past three months. Loss estimates for 2024 have narrowed down to 42 cents per share (from 46 cents) over the past seven days. SNBR earnings topped the consensus mark in three of the last four quarters, missed on one occasion, with the average surprise being 96%. It also has a favorable VGM Score of A, making it a potentially interesting investment opportunity.
Price and Consensus: SNBR
Flexsteel Industries: Based in Dubuque, IA, Flexsteel is a manufacturer, importer and online marketer of upholstered furniture for residential and contract markets in the United States. Despite ongoing challenges in the industry, primarily stemming from changes in consumer spending preferences away from home furnishings, the company has effectively managed its operations. It has capitalized on sustained productivity and cost-saving measures, maintained pricing discipline, and actively managed its product portfolio to its advantage. The company is expected to benefit from its growth strategy and new product introductions.
FLXS — a Zacks Rank #2 stock — gained 126.4% in the past year. Earnings estimates for fiscal 2024 have increased to $2.09 per share (from $1.95) over the past seven days, depicting analysts’ optimism about the company’s prospects. The estimated figure indicates 140.2% year-over-year growth. FLXS earnings topped the consensus mark in two of the last four quarters, missed on one occasion and met on another, with the average negative surprise being 4.8%. It has a favorable VGM Score of A.
Price and Consensus: FLXS
American Woodmark: This Winchester, VA-based company is one of the largest manufacturers of kitchen and bath cabinets. Amid slow demand conditions, 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 84% over the past year. The Zacks Consensus Estimate for fiscal 2024 calls for 12.9% year-over-year growth. This company surpassed earnings estimates in all the trailing four quarters, with the average surprise being 41.3%. It also carries an impressive VGM Score of A.
Price and Consensus: AMWD