The current earnings season has made reluctance among shoppers to make big-ticket purchases prominent. Higher interest rates, stocky inflation, a stagnant housing market, the gradual depletion of savings and changing consumer preferences toward services over goods have led to thissignificant concern among retailers.
“Furniture is more exposed” to this shift in spending pattern than appliances, Shanton Wilcox, U.S. manufacturing lead at PA Consulting, told Yahoo Finance. The manufacturing costs of furniture are more as these are often made in the United States, where costs are higher as opposed to appliances that are normally manufactured abroad, where costs are lower.
Still, some top-ranked furniture stocks including American Woodmark AMWD, MillerKnoll MLKN, Ethan Allen Interiors ETD and HNI HNI arw set to win despite industry woes.
Business Shutdown and Bankruptcies in Furniture Industry
The impact of reduced consumer spending has been felt acutely by some privately held companies in the furniture sector. Mitchell Gold + Bob Williams and Klaussner Furniture Industries have closed their doors due to weak sales and financing difficulties.
United Furniture, a major supplier for Big Lots, also faced bankruptcy and layoffs. Notably, the pandemic-led surge in demand led companies to expand capacity, but now they must cut back, leading to plant closures and bankruptcies.
Home Improvement Giant’s Insights
Home improvement retailers are particularly affected by the shift in consumer preferences. According to Billy Bastek, Home Depot‘s HD EVP of Merchandising, the company is observing softer engagement in big-ticket discretionary categories like patio and appliances. This decline likely stemmed from a combination of the “pull forward” effect from previous purchases and a deferral in spending.
Inflation Weighs On Lower-Income Shoppers
Inflation has emerged as a significant factor in deterring lower-income shoppers from making higher-priced purchases. Bruce Thorn, CEO of Big Lots BIG, indicated in its second-quarter earnings call that the core lower-income customer segment faced substantial financial pressure. The high-priced outdoor furniture segment was especially hurt.
Stocks to Pick
Against this challenging backdrop, there are some furniture makers and their stocks that are still well placed. Below, we highlight them.
American Woodmark (AMWD): The is the third-largest manufacturer of kitchen and bath cabinets. Offering more than 340 cabinet lines in a wide variety of designs, materials and finishes, American Woodmark products are sold through a network of dealers and distributors and directly to home centers and major homebuilders.
AMWD’s current year growth rate is negative 9.71% as compared with the furniture industry’s growth rate of negative 14.50%. The stock currently sports a Zacks Rank #1 (Strong Buy) and has an upbeat VGM Scoreof A.You can see the complete list of today’s Zacks #1 Rank stocks here.
MillerKnoll (MLKN): Doing business as Herman Miller, MillerKnoll is an American company that produces office furniture, equipment and home furnishings. Its best-known designs include the Aeron chair, Noguchi table, Marshmallow sofa, Mirra chair and the Eames Lounge Chair.
The current year’s growth rate for the company is negative 2.71% as compared with the furniture industry’s growth rate of negative 14.50%. MLKN has a Zacks Rank #1 and a VGM Score of A.
Ethan Allen Interiors Inc. (ETD): This is a leading interior design company and manufacturer and retailer of quality home furnishings.
Though the current year’s growth rate for the company is negative 19.35% as compared with the industry’s growth rate of negative 18.70%, the stock is undervalued in nature. Its P/E (ttm) is only 7.85X compared with 20.93X P/E recorded by the home-furnishing industry. ETD also has a good VGM Score of B and a Zacks Rank #2 (Buy).
HNI (HNI): Zacks Rank #1 HNI provides products and solutions for the home and workplace environments. The stock has an average VGM Score of C. The current year’s growth rate for the company is negative 1.82% as compared with the office products industry’s growth rate of negative 9.40%.
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