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Furniture/Furnishings Weekly

Furniture and furnishings stocks were nicely higher in the week, as the market rotated from larger, growth-oriented, and AI-driven stocks to smaller-cap, value-oriented issues. The WTR Commercial/Contract Furniture Index (+4.4%), Residential Manufacturers & Suppliers Index (+8.3%), and Home Goods Retailers Index (+8.1%) all had strong showings, reflecting the gains seen in the broader Russell 2000 (+5.4%). The Mass Retailers Index fell (-0.4%), in line with the broader moves away from large-cap, technology-oriented stocks. The moves in the DJ30 (+0.8%) and S&P 500 (+0.8%) reflected the way the different components of these indexes were affected by these trends. BSET reported a tough 2Q24, with sales down ~17% and a GAAP EPS loss of $0.82, as it announced it will undertake a five-point restructuring plan to improve margins and ‘right-size’ the business to current demand. According to our analysis, Bassett posted a non-GAAP EPS loss of $0.17, booking more than $8.2 million in non-cash restructuring and additional inventory valuation charges. Its plan includes closing Noa Home, exiting ‘low velocity’ product lines and consolidating its domestic wood furniture manufacturing, while also prioritizing store refurbishment and investment. Ultimately, it expects the implementation to lower costs and improve margins as demand returns, positing $5.5-6.5 million in savings beginning in FY25. The balance sheet and cash flow remain strong. Notably, it increased its quarterly dividend 11% to $0.22. Management also said retail orders were down much less than total sales, suggesting that written orders may be at a bottom. Moreover, management noted MDW and July 4 promotional periods saw higher order activity than last year. Time communicating dominates time creating in the modern office, according to Microsoft research. Its data suggests that since the pandemic, meeting time (often virtual or hybrid) has increased 3x and that office workers now spend more of their time communicating (57%) versus creating (43% of time). Commercial furniture manufacturers increasingly emphasize products to boost office collaboration and post-pandemic, as more offices are reconfigured for collaborative work. Derek Thompson of The Atlantic suggests increasing complexity is at root, which suggests that these trends will remain entrenched even if return-to-office were to accelerate. Home ownership is increasingly out of reach for the US consumer. The latest data from the Atlanta Federal Reserve Bank’s Home Ownership Affordability Monitor (see Figure 1) shows how the combination of higher mortgage rates and higher home prices have made home ownership less affordable. Home sales are historically a strong driver of furniture and furnishings sales. To the extent that affordability has contributed to weak home sales, these trends look likely to continue to pressure industry demand.