Over the past three months, many of us have been shut away at home due to the novel coronavirus. In turn, we’ve been increasingly relying on companies that make the stay-at-home life easier. Therefore, today, I’ll look at three furniture stocks that are making work-from-home more comfortable.
According to recent survey that ran between April 1-15 and led by Erik Brynjolfsson of MIT:
“The fraction of workers who switched to working from home is about 34.1%. In addition, 14.6% reporting they were already working from home pre-COVID-19. This suggests nearly half the workforce is now working from home….”
Moreover, with the number of new coronavirus cases increases, many Americans may continue to spend more time at home this summer. That said, it may not be such a bad idea to kick back and relax in a comfortable sofa. After all, staycation is the new vacation. Or you may want to get a new chair for your home office, especially if your employer may be reimbursing part of the cost. And how about shopping for a comfortable bed for a good-night’s sleep after a long-day’s work at the new home office?
Overall, equity markets have rallied off their March lows. Yet, over the past several days, broader markets have become quite volatile again. And in the second half of the year, investors are likely to reward decent performance amid the chaos caused by the pandemic; Especially if a potential second wave becomes more prolonged and pronounced.
Therefore, furniture retailers may be a segment to do further due diligence for potentially including in long-term portfolios. With that in mind, here are three furniture stocks making work-from-home more comfortable:
I believe many investors may feel comfortable owning these shares for the long run. So, let’s take a closer look at them.
Hot Furniture Stocks: HNI (HNI)
Iowa-headquartered HNI describes itself as “a leading global provider and designer of office furniture and the nation’s leading manufacturer and marketer of hearth products.”
The company released first-quarter earnings in late April, where it reported lower organic revenue by 2.5% year-over-year. This weakness was due to the office furniture segment, which was down 4.3% YOY. And overall, office furniture contributes about three quarters of total revenues. On the other hand, though, the hearth products segment was up 2.6% YOY — while annual revenues are around $2.2 billion.
Additionally, on June 1, management provided an update on Q2 order trends. Accordingly,
- Domestic Workplace Furnishings were down 35% YOY;
- eCommerce was up 206% YOY;
- Residential Building Products were down 10% YOY.
In turn, company CEO Jeff Lorenger said:
“Recovery to pre-pandemic levels will take some time, but recent order trends are encouraging given the conditions. We generated positive order growth in building products during May as builders worked through their backlogs… Domestic orders in workplace furnishings have stabilized and are generally showing week-over-week improvement. We expect this trend to continue as the economy improves and businesses begin to open. Our e-Commerce business continues to generate strong growth, primarily from a spike in home office demand.”
Year-to-date, HNI shares are down about 21.6%, flirting with $30. The current price supports a dividend yield of 4%, while the trailing price-earnings (P/E) ratio is 14.8 and price-sale (P/S) ratio is 0.56. So, collectively, I believe the stock deserves your attention as one of the furniture stocks making work from home more comfortable. I’d consider buying, especially if the price goes toward $25.
Michigan-based La-Z-Boy is one of the world’s leading residential furniture producers. Many of you are probably familiar with their recliners, chairs, sleeper sofas among other pieces of home furniture. In fact, the group is one of the most-recognized brands in the industry.
Moreover, on June 23, it reported fiscal 2020 fourth-quarter and year-end results. For fiscal 2020, consolidated sales decreased 2.4% YOY to $1.70 billion — “reflecting ten months of strength and two months of dramatic temporary impact from the COVID-19 pandemic,” according to the company. For the year, the company reported net income of $77.5 million, or $1.66 per share.
Additionally, during Q4, consolidated sales also decreased 19.1% YOY to $367.3 million. Also, quarterly net income was $2.3 million, or 5 cents per share. And adjusted for one-time gains and costs, earnings came to 49 cents per share.
On that note, CEO Kurt Darrow highlighted:
“Our fourth quarter started with a 20.4% increase in written same-store sales for the entire La-Z-Boy Furniture Galleries network in February, and we experienced other examples of strength across our vast network of distribution. However, the trajectory of sales and earnings growth for the last two months of the year were significantly impacted by COVID-19 and mandated retail closures across North America.”
The company divides revenue into four main segments:
- Upholstery segment (largest segment, about 58.5% of revenue);
- Casegoods segment (about 5% of revenue);
- Retail segment sales (largest segment, about 32% of revenue);
- Corporate and other (about 4.5% of revenue).
Overall, YTD, LZB stock is down about 14% — hovering at $27. The current price supports a dividend yield of 1.96%, and in Q4, the retailer returned $14.5 million to shareholders through share purchases and dividends. Also, the trailing P/E ratio of 16.3 and P/S ratio of 0.74 puts the company on my radar of furniture stocks making work from home more comfortable.
That said, I’d buy the dips.
Sleep Number (SNBR)
Minnesota-based Sleep Number designs, manufactures and sells a line of Sleep Number beds, as well as bases and bedding accessories. The group describes its mission as “to improve lives by individualizing sleep experiences.” That said, you may be familiar with the company as maker of adjustable mattress systems.
In late April, the group released strong Q1 results. Quarterly net sales increased 11% to $473 million, and diluted EPS grew 70% to a record $1.36.
Sleep Number’s sales are mostly retail based (i.e., 92% of revenue), while the rest is mostly online and phone. Therefore, when the lockdown kicked in, weekly sales decreased by 80% as the company closed 80% of its stores.
On that note, CEO Shelly Ibach said:
“We expect the existing government-mandated closures to continue to place meaningful pressure on sales through May and to a lesser extent, into June, followed by a gradual recovery in the back half of the year.”
The quarterly announcement also highlighted some dramatic cost-saving steps the retailer took, such as halting share buybacks, furloughing 40% of its workers and reducing executive compensation. Management also decreased 2020 planned capital expenditures to approximately $35 million versus previous plan of $60 million, with $10 million incurred in the first quarter.
Moreover, YTD, SNBR shares are down about 15.1% — sitting just under $42. The trailing P/E ratio of 12.7 and P/S ratio of 0.7 may also interest long-term shareholders who may believe consumers will pay more attention to their health, including the quality of sleep.
The group is expected to report Q2 earnings in late July. Therefore, you may want to see the fundamental metrics and performance before you hit the “buy” button. Earlier in March, the company withdrew its fiscal 2020 financial guidance due to the pandemic. Collectively, I regard Sleep Number as one of the furniture stocks to add to portfolios — especially if there is any further price weakness toward the $35-level in the second half of the year.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan did not hold a position in any of the aforementioned securities.