retail watch | Nov 16, 2023 |
For home retailers, the worst may be over

Maybe, just maybe, the home furnishings business is back on the road to recovery.

Recent financial results from several key big retailing chains offer some encouraging news, while new data from the Census Bureau and housing experts show the industry may finally be ending more than 20 months of post-pandemic agony.

This is not “we’re back baby!” news, mind you. Business remains tough. But it does seem as if some in the industry are, if not turning the corner, at least approaching it. Retailers like Home Depot and Williams-Sonoma are beating Wall Street estimates, and their executives are optimistic on earnings calls. Some are still showing year-over-year drops in sales, but the shortfalls are getting smaller, not bigger.

The most encouraging news comes from Arhaus, the rapidly expanding upscale chain that has been generally outperforming the category for much of this year. In its third quarter earnings report in early November, the retailer surpassed its top-line revenues from a year ago by just under 2 percent, and continued a positive outlook for the rest of its fiscal year.

Havertys, which operates primarily in the Southeast, didn’t have quite as positive a story to tell—in fact, it registered a double-digit sales decline for its third quarter. But that was still better than earlier quarters this year. In calls with analysts, the company took a moderately positive outlook for the short-term, citing specific initiatives like new stores and targeting interior designers.

Williams-Sonoma, with its Pottery Barn, West Elm and Rejuvenation brands (among others), had a similar tale to tell, with a sales decline more moderate than the quarter prior—reinforcing an overall positive outlook. Telsey Advisory Group, a boutique banker that follows the company, was optimistic, projecting: “Once the macro backdrop normalizes, we see [Williams-Sonoma] as well positioned for growth with a strong portfolio of brands and opportunities to expand its B2B business.”

Home Depot showed even more strength than Williams-Sonoma in its most recent quarter, with comp sales up 3.1 percent, beating Wall Street estimates. It remains positive about the rest of its fiscal year, though it has not changed its projections from earlier forecasts.

In the meantime, new numbers from the Census Bureau, as reported by The Wall Street Journal, show that “U.S. consumers devoted a seasonally adjusted 33.3 percent of their spending to goods in September, compared with an average of 31.4 percent in 2019.” That would seem to suggest that not only have consumers returned to pre-pandemic spending patterns, but they’re spending more on consumer goods than before.

The article suggested that with more people working from home and saving money on commuting costs and other office-related spending, they may be using those funds inside their homes instead. Making its point, the WSJ wrote that “the post-pandemic comedown for retailers—at least some of them—might not be so painful after all.”

Lastly, Harvard’s Joint Center for Housing Studies, the gold standard when it comes to data on this sector, reports that homeowner spending on improvements and repairs to their homes over the past year gained 5.4 percent to $489 billion. That is down from a much larger 17 percent gain the year before, but shows that consumers are still as interested in where they live, not just where they want to travel.

Putting all this together, it’s still not a ringing endorsement of a major rebound in the home and furniture business. But it does seem to suggest we may have seen the worst of things, and in an economy where things change with amazing speed, perhaps there are better times ahead … and perhaps not too far ahead.

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