The Zacks Textile-Home Furnishing industry comprises manufacturers, designers, distributors and marketers of flooring, carpet and upholstery products. The products include carpets, rugs, ceramic tile, laminate, wood, stone and vinyl flooring in the United States and worldwide. Through a network of independently commissioned sales representatives, these industry players sell their products through independent distributors, retailers, wholesalers, specialty stores and home centers.
Let’s take a look at the industry’s three major themes:
-
Though the housing market slowdown in the United States has made the operating backdrop a bit challenging for the industry players, the companies are registering higher demand courtesy of an increase in disposable income, lower unemployment rate and improving consumer confidence. Higher construction spending activity has turned out to be a boon for the Textile-Home Furnishing industry, boosting companies’ revenues and profits. Also, the recent decline in mortgage rates should benefit existing home sales, which in turn would provide a modest bump to repair and remodeling activity in the near term.
-
The industry participants have been drumming up sales with product innovation and expanded distribution in a highly competitive market. The companies are trying hard to offset higher costs by raising prices, expanding in growing channels, and foraying into new product categories and geographies. The companies are also pursuing accretive acquisitions to broaden their product portfolio and expand geographic footprint as well as market share.
-
On the flip side, rising raw material costs, higher transportation costs, a stronger dollar and a tight labor market are hurting profit margins. Significant investments in new products, distribution network and manufacturing facilities in a highly competitive landscape raise concerns. Moreover, the introduction of tariffs on $200 billion worth of Chinese imports by the Trump administration has the entire space reeling under trade-war fears. The threat of tariffs on imports and retaliatory tariffs on exports spell trouble for the industry. Higher tariffs make sourcing difficult for home furnishing manufacturers, pushing up costs.
Zacks Industry Rank Indicates Bearish Outlook
The Zacks Textile-Home Furnishing industry is a six-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #245, which places it in the bottom 4% 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 dull 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 negative 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 Dec 31, 2018, the industry’s earnings estimate for the current year has gone down 11.3%.
Despite bleak near-term prospects of the industry, we will present a few home furnishing stocks that one can retain given their growth prospects. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags Sector & S&P 500
The Zacks Textile-Home Furnishing industry has lagged the broader Zacks Consumer Discretionary sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 39.5% over this period compared with the broader sector’s decrease of 0.2%. The S&P 500 has risen 7.3% in the said time frame.
One-Year Price Performance