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Furniture/Furnishings Weekly

Our Commercial/Contract Furniture Index was up 0.6% for the week, notably outperforming the three market indexes and the Mass Retailers Index (down between 1.4% and 3.2% for the week). Our Residential Manufacturers & Suppliers Index (down 3.5%) and Home Goods Retailers Index (down 2.9%) were more in line with the broader market indexes. Home goods retailer Beyond sold the Wamsutta brand/IP to Indo Count Global for $10.3 million as the firm focuses on integrating its purchase of Bed, Bath, and Beyond into its portfolio of online properties. With this sale, Beyond recoups almost half of the purchase price it paid for BBY. This transaction enables Beyond to focus on its core digital/e-commerce capabilities and is consistent with its customer-focused and asset-light strategy that seeks to offer consumers the best products at any time, regardless of source. The Kastle Systems Return-to-Work (RTO) Index (see chart below) continued its recent sideways move this week with a 49.8% print. The overall trend since late summer 2022 remains positive, but the slope of improvement is modest. Hybrid and work-from-home clearly continue to pressure office occupancy rates as these trends look to become more institutionalized as the ‘new normal’ for knowledge workers. The March Beige Book suggests continued weakness in discretionary spending and more challenges in passing on inflationary increases in costs to consumers. Both trends keep pressure on demand and margins in the residential furniture industry, in particular. However, corporate profits (see chart below) continue to trend up, suggesting perhaps less of an impact for the commercial furniture players (that have their own headwinds from punk RTO trends, as noted above). The new dark ages (for small-cap stocks). The Financial Times (FT access is gated; link in our full report) notes that while the median S&P 500 firm is covered by 18 analysts, one in seven small-cap stocks has one (or fewer) covering analysts (and that the median Russell 2000 issue only has five analysts). Less coverage implies more information inefficiencies and weaker price discovery, factors that the Water Tower Research model strives to mitigate for covered companies. The same FT article (gated; link above) suggests ‘higher-for-longer’ interest rates may affect earnings for small caps more than larger caps. Why? On average, floating rate debt occupies a larger proportion of smaller company balance sheets. Companies with stronger balance sheets and solid cash flows should benefit, relatively, in the absence of these headwinds. This Wednesday, Sleep Number and Ethan Allen (not covered by WTR) will report after the market close. Each company will host a management-led conference call after the release, beginning at 5:00 pm ET. We look for the reports and calls to shed additional light on demand and the state of the consumer.