Chicago, IL – January 14, 2022 – Today, Zacks Equity Research discusses Williams-Sonoma, Inc. WSM, Tempur Sealy International, Inc. TPX, The Lovesac Co. LOVE and Ethan Allen Interiors Inc. ETD.
Industry: Home Furnishing
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., Tempur Sealy International, Inc., The Lovesac Co. and Ethan Allen Interiors Inc.
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 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.
Solid Residential & R&R Markets, Higher Consumer Spending: 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.
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.
Strong Digital Platform, Product Reinvention & Marketing Moves: 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.
Supply-Chain Issues, Stiff Competition & Labor Expenses: 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.
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. 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.
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.
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.
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.
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. You can see the complete list of today’s Zacks #1 Rank stocks here.
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.
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.
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.
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.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Tempur Sealy International, Inc. (TPX) : Free Stock Analysis Report WilliamsSonoma, Inc. (WSM) : Free Stock Analysis Report The Lovesac Company (LOVE) : Free Stock Analysis Report Ethan Allen Interiors Inc. (ETD) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research