The rise in interest rates and inflationary pressures impacted consumer spending within the home improvement industry. However, the appetite for home renovations and remodeling services is projected to maintain steadiness throughout the current year.
Given the optimism, it could be wise to take a bullish stance on fundamentally sound home improvements stocks Snap-on Incorporated (SNA), Central Garden & Pet Company (CENTA), Tile Shop Holdings, Inc. (TTSH), Bassett Furniture Industries, Incorporated (BSET), and Flexsteel Industries, Inc. (FLXS), which are gaining traction among investors.
Despite easing substantially from the last year’s high, inflation remains well above Fed’s 2% threshold, which indicates further rate hikes might be on the horizon to address this issue.
Due to this persisting inflation and higher interest rates, consumers’ attention is directed toward remaining in their current residences and channeling investments into repairs, renovations, and enhancements that harmonize with their lifestyles and needs.
Given the solid demand, the global market for home improvement services is projected to experience growth from $324.80 billion in 2022 to approximately $343.80 billion in 2023, exhibiting a CAGR exceeding 5%. Further, the market is expected to reach $423.90 billion by 2027.
Furthermore, the upswing in the adoption of advanced smart home technologies such as the Internet of Things (IoT) and Artificial Intelligence (AI) is driving an increased desire for home improvement services.
These encompass maintenance, repairs, and interior modifications for IoT sensors and intelligent devices. The growing favor for smart homes and heightened security priorities are anticipated to further propel growth in the global home improvement market.
Additionally, the steady popularity of Do-It-Yourself (DIY) home improvement solutions, driven by their cost-saving benefits on labor, is expected to provide significant momentum to the market's progression. The global DIY home improvement retailing market is poised to experience steady growth, with a consistent CAGR of 4.4%, leading to a revenue of approximately $1.28 trillion between 2022 and 2030.
Keeping all these factors in mind, let us examine the fundamentals of the featured stocks in detail:
Snap-on Incorporated (SNA)
SNA manufactures and markets tools, equipment, diagnostics, repair information, and systems solutions for professional users worldwide. It operates through Commercial & Industrial Group; Snap-on Tools Group; Repair Systems & Information Group; and Financial Services segments.
On August 3, SNA declared a quarterly common stock dividend of $1.62 per share, payable to its shareholders on September 11, 2023. The company’s annual dividend of $6.48 translates to a 2.42% yield on the prevailing prices, while its four-year average dividend yield is 2.52%.
Its dividend payouts have grown at CAGRs of 14.4% and 14.7% over the past three and five years, respectively. Also, it has a record of 13 years of consecutive dividend growth.
On June 29, SNA introduced its line of carts, which come in various sizes, drawer arrangements, and an extensive selection of color and trim options. These carts cater to the diverse needs of technicians while also serving as an ideal supplementary accessory for individuals seeking extra storage space.
This addition should help the company to meet the growing demand for tool storage solutions and attract new customers.
SNA’s trailing-12-month EBITDA margin of 27.95% is 105.2% higher than the 13.62% industry average. Its trailing-12-month net income margin of 19.53% is 215.3% higher than the 6.19% industry average. Also, the stock’s trailing-12-month levered FCF margin of 11.28% is 108.5% higher than the industry average of 5.41%.
For the fiscal second quarter, which ended on July 1, 2023, SNA’s net sales increased 4.8% year-over-year to $1.19 billion, while its gross profit rose 9.1% from the year-ago value to $603.70 million. Its EBIT came in at $348.10, up 12.5% year-over-year.
In addition, the company’s attributable net earnings grew 14% and 14.5% from the prior-year quarter to $264 million and $4.89 per share, respectively. During the same period, its cash and cash equivalents amounted to $871.30 million, up 15.1% versus $757.20 million as of December 31, 2022.
Street expects SNA’s revenue and EPS for the third quarter (ending September 2023) to increase 3.5% and 7.5% year-over-year to $1.14 billion and $4.45, respectively. Moreover, the company has an excellent surprise history, surpassing the revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 17.2% year-to-date to close the last trading session at $267.70.
SNA’s promising outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Momentum and Stability. It is ranked #5 out of 57 stocks in the B-rated Home Improvement & Goods industry. To see SNA’s Growth, Value, and Sentiment ratings, click here.
Central Garden & Pet Company (CENTA)
CENTA produces and distributes various products for the lawn and garden, and pet supplies markets in the United States. It operates through two segments: Pet and Garden.
On April 24, Pennington, a leading brand in CENTA’s portfolio, unveiled a fresh brand identity. Crafted to foster a sense of creativity and community within diverse gardening circles, this identity mirrors the contemporary way consumers tend to their outdoor areas. The rebranding aligns with Pennington's expansion into novel categories that resonate with the preferences of its customer base.
CENTA’s trailing-12-month levered FCF margin of 5.35% is 57.4% higher than the 3.40% industry average. Also, its trailing-12-month cash per share of $6.21 is 313% higher than the $1.50 industry average.
CENTA’s net sales for the third quarter of fiscal 2023 (ended June 24, 2023) increased marginally year-over-year to $1.02 billion. Its gross profit rose 3.4% from the year-ago value to $318.05 million. Also, its operating income improved by 7.7% from the prior-year quarter to $122.83 million.
Moreover, the company’s non-GAAP net income amounted to $93.67 million and $1.75 per share, up 24.2% and 25.9% year-over-year, respectively. While its adjusted EBITDA grew 17.3% from the year-ago value to $165.76 million.
CENTA’s revenue for the fourth quarter (ending September 2023) is projected to increase 4.1% year-over-year to $736.07 million, while its revenue for fiscal 2023 is expected to come in at $3.30 billion. Moreover, its EPS is expected to improve by 5.9% per annum over the next five years.
CENTA’s shares have gained 19.1% over the past three months and 16.2% year-to-date to close the last trading session at $41.59
CENTA’s POWR Ratings reflect strong prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It is ranked #3 in the same industry. It has a B grade for Growth, Value, Sentiment, and Quality. In addition to the POWR Ratings grades I’ve just highlighted, you can see CENTA’s ratings for Momentum and Stability here.
Tile Shop Holdings, Inc. (TTSH)
TTSH operates as a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories in the United States. Its offerings include natural stone products, such as marble, travertine, granite, quartz, sandstone, slate, onyx tiles, etc.
On June 26, TTSH inaugurated its fifth store in the Colorado market, elevating its presence to a total of 143 retail showrooms spanning the United States. The new retail showroom spans approximately 10,000 square feet, delivering homeowners and trade professionals an unparalleled design experience.
It boasts an expansive variety of tiles. The selection caters to a diverse range of projects, spanning from DIY backsplashes to extensive renovations.
TTSH’s trailing-12-month gross profit margin of 64.88% is 83.2% higher than the 35.41% industry average. Also, the stock’s trailing-12-month CAPEX/Sales of 3.83% is 19.2% higher than the industry average of 3.21%.
For the second quarter, which ended on June 30, 2023, TTSH’s net sales amounted to $98.56 million, while its adjusted EBITDA came in at $13.58 million.
In the same period, the company’s net income stood at $5.08 million and $0.12 per share, respectively. In addition, its cash and cash equivalents came in at $14.59 million, increasing 145.3% compared to $5.95 million as of December 31, 2022.
Analysts expect TTSH’s revenue and EPS for the fiscal third quarter (ending September 2023) to be $96.77 million and $0.05, respectively. In addition, its EPS is expected to improve by 20% per annum over the next five years. Moreover, the company topped the EPS estimates in three of the trailing four quarters.
Over the past nine months, the stock has gained 39.9% to close the last trading session at $5.92.
It’s no surprise that TTSH has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
It has an A grade for Sentiment and Quality and a B for Value. It is ranked first in the Home Improvement & Goods industry. For additional ratings of TTSH for Growth, Momentum, and Stability, click here.
Bassett Furniture Industries, Incorporated (BSET)
BSET engages in the manufacture, marketing, and retail of home furnishings in the United States and internationally. It operates through two segments: Wholesale and Retail company-owned Stores.
On June 25, BSET increased its quarterly dividend by 12.5% to $0.18 per share, payable to its shareholders on August 25, 2023. The company’s annual dividend of $0.72 translates to a 4.38% yield on the prevailing prices, while its four-year average dividend yield is 6.11%. Its dividend payouts have grown at CAGRs of 13.2% and 7.7% over the past three and five years, respectively.
On May 15, BSET entered into an agreement with Acuative to cater to its expanding requirement for advanced and effective networking, communication, and security technology. Acuative will implement a comprehensive range of networking equipment and communication solutions across all BSET stores.
Alongside this technology deployment, Acuative will offer immediate technical assistance and enhance backup wireless network connectivity for each store location. This partnership aligns with BSET’s commitment to delivering top-notch customer experiences across its retail outlets.
The stock’s trailing-12-month gross profit margin of 52.55% is 48.4% higher than the 35.41% industry average. Also, its trailing-12-month cash per share of $6.22 is 158.9% higher than the industry average of $2.40.
In the second quarter that ended May 27, 2023, BSET’s net sales amounted to $100.52 million, while its gross profit stood at $52.82 million. During the same period, the company’s net income and EPS came in at $2.08 million and $0.24, respectively.
For the third quarter (ending August 2023), BSET’s revenue and EPS are projected to be $98.86 million and $0.12 million, respectively. While its EPS is expected to increase 16% per annum in the next five years.
Over the past three months, the stock has gained 16.1% to close the last trading session at $16.02.
BSET’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and Quality and a B for Value and Momentum. It is ranked #2 in the same industry. Click here to see the additional POWR Ratings for BSET (Growth and Stability).
Flexsteel Industries, Inc. (FLXS)
FLXS operates as a manufacturer, importer, and online marketer of upholstered furniture for residential and contract markets in the United States. It provides upholstered furniture, such as sofas, convertible bedding units, chairs, reclining and rocker-reclining chairs, swivel rockers, sofa beds, etc.
On July 10, FLXS paid its shareholders a quarterly dividend of $0.15 per share, which marks its 326th uninterrupted quarterly dividend. FLXS’ annual dividend of $0.60 translates to a 3% yield on the prevailing prices, while its four-year average dividend yield is 3.42%.
The stock’s trailing-12-month levered FCF margin of 8.55% is 80.4% higher than the 4.74% industry average. Furthermore, its trailing-12-month asset turnover ratio of 1.48x is 48.2% higher than the industry average of 1.00x.
For the nine-month period that ended on March 31, 2023, FLXS’ net sales amounted to $287.87 million, while its gross margin stood at $49.83 million. Its operating income came in at $6.31 million, up 106.7% year-over-year. The company’s net income increased 117.4% year-over-year to $4.62 million, and its EPS came in at $0.85, up 174.2% year-over-year.
The consensus revenue estimate of $96.64 million for the first quarter of fiscal 2024 (ending September 2023) represents a marginal increase year-over-year. The consensus EPS estimate of $0.28 for the current quarter indicates a 211.1% improvement year-over-year. Additionally, the company surpassed the revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 35.9% over the past nine months to close the last trading session at $20.46.
FLXS’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Value and Sentiment and a B for Growth and Momentum. Within the same B-rated industry, it is ranked #4. Click here to see the FLXS’ additional POWR Ratings for Stability and Quality.
What To Do Next?
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SNA shares were trading at $267.33 per share on Thursday afternoon, down $0.37 (-0.14%). Year-to-date, SNA has gained 18.52%, versus a 15.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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