Despite the turbulent macroeconomic conditions and lingering fears of a recession, the home goods industry has remained resilient, thanks to changing consumer trends and a desire to improve homes.
Given the desire to undertake home improvement projects rather than buying a new home, investors could look to buy fundamentally strong home improvement stocks La-Z-Boy Incorporated (LZB), HNI Corporation (HNI), and Ethan Allen Interiors Inc. (ETD).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the home improvement industry.
With lifestyles constantly changing and a rising number of individuals owning homes, the home improvement market is experiencing rapid growth. The homeownership rate in the U.S. rose slightly in 2022. In 2022, the proportion of households that owners occupy stood at 65.9%, its highest level since 2011. The U.S. remodeling market was worth $567 billion in 2022.
The pandemic shifted people’s attention toward their homes like never before. During the pandemic, the home improvement industry witnessed strong demand for remodeling homes, creating work-from-home spaces, and needing in-home entertainment and leisure areas.
Thanks to easy access to online retail outlets, individuals can purchase items to redecorate from the comfort of their homes. This easy product availability and a broad range of products available for consumers across various distribution channels are fuelling the industry’s growth.
The home decor market is expected to grow to $1.34 trillion by 2032 at a compound annual growth rate (CAGR) of 18.2%.
Considering these factors, it could be wise to buy the featured home goods stocks. Let’s take a closer look at their fundamentals.
La-Z-Boy Incorporated (LZB)
LZB Incorporated manufactures, markets, imports, exports, distributes, and retails upholstery furniture products, accessories, and casegoods furniture products worldwide. It operates through Wholesale, Retail, Corporate, and Other segments.
In terms of the trailing-12-month EBIT margin, LZB’s 9.96% is 34.7% higher than the industry average of 7.39%. Its 6.20% trailing-12-month levered FCF margin of is 111.7% higher than the industry average of 2.93%. Likewise, its 9.41% trailing-12-month Return on Total Assets is 157.3% higher than the 3.66% industry average.
LZB’s non-GAAP gross profit for the fiscal third quarter ended January 28, 2023, increased 12.7% year-over-year to $247.31 million. The company’s non-GAAP operating income increased 33.8% over the year-ago quarter to $53.18 million.
Non-GAAP net income attributable to LZB increased 36.5% year-over-year to $39.23 million. In addition, its non-GAAP EPS came in at $0.91, representing a 40% increase year-over-year.
LZB’s EPS for fiscal 2023 is expected to increase 15.5% year-over-year to $3.59. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 18% year-to-date to close the last trading session at $26.93.
LZB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Home Improvement & Goods industry, it is ranked #5 out of 56 stocks. The stock has an A grade for Quality and a B for Value.
Click here to access all the ratings of LZB for Growth, Momentum, Stability, and Sentiment.
HNI Corporation (HNI)
HNI manufactures, sells, and markets workplace furnishings and residential building products primarily in the United States and Canada. The company operates through two segments, Workplace Furnishings, and Residential Building Products.
On March 8, 2023, HNI and Kimball International, Inc. (KBAL) announced that they have entered into a definitive agreement under which HNI will acquire all the outstanding shares of Kimball International.
HNI’s Chairman, President, and Chief Executive Officer, Jeff Lorenger, believes that the combined company will have a stronger platform for growth, delivering significant benefits for its shareholders, members, dealers, and customers.
In terms of the trailing-12-month gross profit margin, HNI’s 36.19% is 20.8% higher than the 29.96% industry average. Its 18.64% trailing-12-month Return on Common Equity is 36.4% higher than the 13.67% industry average. Likewise, its 1.56x trailing-12-month asset turnover ratio is 94.8% higher than the industry average of 0.80x.
HNI’s net sales for the first quarter ended April 1, 2023, came in at $479.10 million. The company’s non-GAAP gross profit margin came in at 36.5%, compared to 34.4% in the year-ago period. Additionally, its net income attributable to HNI and net EPS attributable to HNI came in at $1.60 million and $0.04, respectively.
HNI’s EPS and revenue for the quarter ending December 31, 2023, are expected to increase 20.6% and 8.7% year-over-year to $0.76 and $618.17 million, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 1.4% to close the last trading session at $26.67.
HNI’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #18 in the same industry. It has an A grade for Sentiment and a B for Value and Quality. Click here to see the other ratings of HNI for Growth, Momentum, and Stability.
Ethan Allen Interiors Inc. (ETD)
ETD operates as an interior design company, and manufacturer and retailer of home furnishings worldwide. The company operates in two segments, Wholesale and Retail.
In terms of trailing-12-month EBIT margin, ETD’s 17.41% is 135.5% higher than the industry average of 7.39%. Its 13.42% trailing-12-month net income margin is 212.7% higher than the 4.29% industry average. Likewise, its 15.10% trailing-12-month Return on Total Assets is 312.7% higher than the industry average of 3.66%.
For the fiscal third quarter ended March 31, 2023, ETD’s adjusted operating income came in at $28.32 million. The company’s adjusted net income came in at $22.01 million. Its total assets came in at $741.32 million, compared to $719.90 million for the fiscal year ended June 30, 2022. Additionally, its adjusted EPS came in at $0.86.
ETD has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 25.3% to close the last trading session at $26.55.
ETD’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It is ranked #17 in the Home Improvement & Goods industry. It has an A grade for Quality.
In total, we rate ETD on eight different levels. Beyond what we stated above, we have also given ETD grades for Growth, Value, Momentum, Stability, and Sentiment. Get all ETD ratings here.
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LZB shares were trading at $26.58 per share on Thursday morning, down $0.35 (-1.30%). Year-to-date, LZB has gained 17.15%, versus a 8.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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