For Immediate Release
Chicago, IL – December 13, 2022 – Today, Zacks Equity Research discusses Williams-Sonoma, Inc. WSM, Ethan Allen Interiors Inc. ETD and Haverty Furniture Companies, Inc. HVT.
Industry: Retail – Home Furnishing
Soft demand conditions, given the housing market slowdown, continued investments in e-commerce, supply-chain bottlenecks and higher raw material costs in the home furnishing market are overriding efficient cost management and persistent focus on product innovation. While efforts are being taken to redesign the supply-chain network and rationalize product offerings, investments in merchandising of brands and digital marketing may hurt somewhat. However, Zacks Retail-Home Furnishings industry players, such as Williams-Sonoma, Inc., Ethan Allen Interiors Inc. and Haverty Furniture Companies, Inc. are looking to overcome the challenges.
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 furnishings.
The industry players also develop, manufacture, market and distribute bedding products. The companies 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
Soft Demand: The industry has been suffering from an uncertain macro environment, continued softness in business trends as a result of ongoing weakness in the housing market and the Federal Reserve’s series of interest rate hikes. Higher mortgage rates are taking a toll on the housing sector and the furnishing market as well.
Supply-Chain Issues, Inflation, Stiff Competition & Labor Expenses: Industry players have been grappling with supply-chain bottlenecks. Due to supply issues across the world, these 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.
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.
Strong Digital Platform, Product Reinvention & Marketing Moves: Optimization of the supply chain and improvement in e-commerce channels are expected to drive the top line. In fact, e-commerce rescued the retail sector amid pandemic-induced uncertainties. This digital platform will continue to play a major role as people find it more comfortable and safer to shop online.
Product innovation plays a key role in market share gain in this industry. Companies aim to come up with products and collaborate with celebrated brands as well as designers to maintain exclusivity. Also, customer experience is being enhanced by innovative marketing techniques, with an emphasis on digital marketing, better merchandising, store remodeling and loyalty programs.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Retail-Home Furnishings industry is a seven-stock group within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #202, which places it in the bottom 19% 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 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 a dull 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 bottom-line growth potential. Since October 2022, the industry’s earnings estimates for 2022 and 2023 have been revised 1.2% and 7% downward, respectively.
Despite the industry’s dim near-term view, we will present a few stocks that one may consider adding to the 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 Retail-Home Furnishings industry has underperformed the broader Zacks Retail-Wholesale sector as well as the Zacks S&P 500 composite over the past year.
The industry has lost 38.5% compared with the S&P 500’s 17.4% decline. The broader sector has declined 26.7% over this period.
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 0.8 compared with the S&P 500’s 3.4 and the sector’s 1.15.
Over the last five years, the industry has traded as high as 1.9X and as low as 0.7X, with the median being 1.3X.
3 Retail-Home Furnishings Stocks to Watch
We have highlighted three stocks currently carrying a Zacks Rank #1 (Strong Buy) or 3 (Hold) and have been capitalizing on fundamental strengths. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ethan Allen Interiors: This Danbury, CT-based company engages in interior design, and manufacture and retail of home furnishings. Its wide array of offerings, a strong network of retail design centers and focus on interior design services as well as technological enhancement have been benefiting the company. It remains well-positioned for fiscal 2023 with its product offerings, advantage of vertical integration, including its North American manufacturing, interior design-focused retail network, a strong logistics network and a healthy balance sheet to maximize opportunities during the year.
ETD’s shares have gained 6.1% over the past year, outperforming the industry. Earnings estimates for fiscal 2023 have increased 20% to $3.24 per share over the past 60 days.
Williams-Sonoma: This is a San Francisco, CA-based multi-channel specialty retailer. The company has been benefiting from its focus on digital initiatives, higher e-commerce penetration and product introductions. In addition to continued enhancement of the e-commerce channel, optimization of the supply chain and disciplined cost control are expected to drive growth.
The WSM stock has declined 32.1% over the past year, outperforming the industry. The company carries a Zacks Rank #3 and has an expected earnings growth rate of 11% for fiscal 2022.
Haverty Furniture Companies: Based in Atlanta, GA, Haverty operates as a specialty retailer of residential furniture and accessories in the United States. The company’s focus on enhanced online presence is expected to drive profit. For this, the company has been making investments in information technology. Although challenges like lower traffic and lower written orders owing to high inflation and slowing housing sales persist, the company’s commitment to serving customers better with fashion, value, design and customization bodes well.
The HVT stock has declined 0.8% over the past year, outperforming the industry. This Zacks Rank #3 company’s earnings estimates for 2023 have increased to $4.35 per share from $3.85 since October 2022.
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