To talk about retail stocks in general doesn’t make a whole lot of sense because there’s just so many categories in there. And whether it’s the department stores, or the convenience stores, or the ones selling electronic goods like computer hardware, or apparel, or shoes, or home furnishings or auto – there’s just so much to choose from – each one has its own dynamics, including demand, supply, operational challenges (or strengths), logistics, pricing, etc.
So perhaps it makes much more sense to pick a single category and see what’s going on in there. And that’s what I’m attempting to do here. For the purpose, I’ve picked the Retail - Home Furnishings industry, which is in the top 11% of Zacks-classified industries.
Clearly, Zacks analysis shows that there are positive factors driving the entire industry that are beneficial for all the players. All we have to do is pick some buy-ranked stocks from here and we’re set.
But first let’s dig into the positive factors driving the industry. And why do I think that the strength will continue in 2022.
Home furnishings are almost always dependent on three major factors: employment, economic growth and the condition of the housing market. And it isn’t hard to see why.
When people are gainfully employed, they tend to spend more on themselves (which includes their homes). That’s because for most people, their biggest asset is their home. Plus, it’s only when you have savings and ongoing income that you think about setting up home at all. Second, it’s only the steadily employed folks that tend to look for better accommodation, whether new or existing. And in both cases, they generally do up that new accommodation to their satisfaction.
The current situation is that it’s mainly the lower wage employees that suffered from the pandemic and they too were stimulus-driven. On the other hand, the need to stay home for work, school and everything else meant that people needed to do some work on their homes. So employment is indeed an important factor.
And you don’t have optimum employment levels without economic growth. Post pandemic economic growth has been phenomenal, and not just because of pent-up demand for things that couldn’t be done during the pandemic. The economy was actually on pretty solid footing when the pandemic hit and it suddenly screeched to a halt.
When things opened up, they just kept opening up. Even with subsequent mutations of the virus, people are generally less concerned because of vaccine availability and efficacy and because we’re getting into the endemic stage. The Conference Board forecasts that U.S. Real GDP growth will be 5.5% this year, after a good fourth quarter.
The IMF expects U.S. real GDP growth of 6.0%, including the impact of supply chain disruptions. For 2022, the IMF expects 5.2% growth. Both rates are at least double the growth rates in the preceding five years (except 2020 when real GDP dropped).
And finally, the most obvious point is the housing market. When more houses exchange hands, whether they are old or new, people will spend money doing them up. The housing market has been dogged by supply chain concerns same as almost every other market. But things are expected to improve next year, as the inventory situation improves with more constructions completed despite raw material cost inflation and labor shortage.
Additionally, more home owners are listing their properties today than they were in the beginning of the year and this should normalize in 2022. With more inventory available, prices will automatically come down and people who had postponed their purchases because of the price situation will re-enter the market.
So let’s jump to the stocks.
Lovesac LOVE
The Lovesac Company (NASDAQ:LOVE) retails offers alternative furniture, sectionals, bean bags, bean bag chairs as well as other accessories such as blankets, footsacs and throw pillows.
In the year ending Jan 2022, Lovesac is expected to grow revenue and earnings by 48.9% and 40.6%, respectively. The following year, it is expected to grow 27.3% and 42.0%, respectively. In the last seven days, estimates for 2022 and 2023 are up 39 cents (40.6%) and 70 cents (57.9%), respectively.
Loavesac shares carry a Zacks Rank #1 (Strong Buy) and have a Growth Score of A.
Ethan Allen (NYSE:ETD) Interiors Inc. ETD
Ethan Allen is a leading interior design company and manufacturer and retailer of quality home furnishings. It offers free interior design services to customers and sells a full range of furniture products and decorative accessories through ethanallen.com and a network of the Design Centers in the United States and abroad.
In the year ending Jun 2022, analysts expect Ethan Allen to grow its revenue by 9.8% and earnings by 30.8%. In 2023, both numbers are currently expected to decline slightly. Needless to say, if the estimate revisions trend is good, it’s an indication that there will ultimately be growth and not a decline. The estimate revisions trend is positive, with the 2022 earnings estimate up 43 cents (16.1%) and the 2023 estimate up 20 cents (7.1%) in the last 60 days.
Ethan Allen shares carry a Zacks Rank #2 (Buy) and have a Growth Score of A.
Williams-Sonoma (NYSE:WSM) WSM
Williams-Sonomais a multi-channel specialty retailer of premium quality home products.
In the year ending Jan 2022, analysts expect Williams-Sonoma to grow its revenue by 22.2% and earnings by 57.2%. In 2023, revenue is currently expected to increase slightly while earnings decline. But the estimate revisions trend will say how 2023 will actually shape up to be. And the estimate revisions trend is decidedly positive, with the 2022 earnings estimate up 64 cents (4.7%) and the 2023 estimate up 91 cents (7.0%) in the last 30 days.
Williams-Sonoma shares carry a Zacks Rank #2 (Buy) and have a Growth Score of A.
Tempur Sealy (NYSE:TPX) International TPX
Tempur Sealy is known as a developer, manufacturer and marketer of bedding products like mattresses, adjustable bases, pillows and other sleep and relaxation products primarily in North America but also internationally.
In 2021, Tempur Sealy’s revenue is expected to grow 36.7% while its earnings grow 71.2%. This is expected to be followed by 11.7% revenue growth and 17.1% earnings growth in the following year. The 2021 estimate is up 4 cents and the 2022 estimate is up 18 cents in the last 60 days.
Tempur Sealy shares carry a Zacks Rank #2 (Buy) and have a Growth Score of A.
3-Month Price Performance
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5 Stocks Set to Double
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Tempur Sealy International, Inc. (TPX): Free Stock Analysis Report
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