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Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

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<ul><li>The commercial/contract (office) furniture stocks rallied last week following HNI’s strong 3Q23 earnings report.</li><li>The commercial/contract furniture issues rose more than 12.7%, outperforming the broad indexes, with HNI leading the group.</li><li>HNI’s 3Q report reinforced the sector story. Sales remain challenging. Improved pricing, a focus on costs, and eliminating unprofitable distractions restored margins.</li></ul>

The commercial/contract (office) furniture stocks rallied last week following HNI’s strong 3Q23 earnings report.The commercial/contract furniture issues rose more than 12.7%, outperforming the broad indexes, with HNI leading the group.HNI’s 3Q report reinforced the sector story. Sales remain challenging. Improved pricing, a focus on costs, and eliminating unprofitable distractions restored margins.

Furniture/Furnishings Weekly - Office Furniture Back in Focus After Strong HNI Quarter

<ul><li>Home goods retailers and furniture manufacturers fell in a week of tough earnings news.</li><li>Ethan Allen Interiors (ETD) reported adjusted EPS <span style="font-size: var(--content-font-size);">of $0.63 for 1QFY24, down from $1.11 last year and </span><span style="font-size: var(--content-font-size);">below consensus of $0.72. </span></li><li><span style="font-size: var(--content-font-size);">Positives in the quarter </span><span style="font-size: var(--content-font-size);">included a 70-basis point improvement in gross margin of </span><span style="font-size: var(--content-font-size);">61.1% despite 23% lower sales. </span></li></ul>

Home goods retailers and furniture manufacturers fell in a week of tough earnings news.Ethan Allen Interiors (ETD) reported adjusted EPS of $0.63 for 1QFY24, down from $1.11 last year and below consensus of $0.72. Positives in the quarter included a 70-basis point improvement in gross margin of 61.1% despite 23% lower sales. 

Furniture/Furnishings Weekly -  Earnings Misses Lead Home Furnishings Lower

<ul>
<li>The office furniture group fell 6% last week, breaking a streak of outperformance, as indicators pointed to weakness.</li>
<li>The office furniture group is up ~21% in 2023 and 32% over the past 12 months.</li>
<li>The Architectural Billings Index (ABI), a diffusion index and key leading indicator of non-residential construction activity (9-12 months), fell to 44.8 in September from 48.1 in August (AIA). </li>
</ul>


The office furniture group fell 6% last week, breaking a streak of outperformance, as indicators pointed to weakness.
The office furniture group is up ~21% in 2023 and 32% over the past 12 months.
The Architectural Billings Index (ABI), a diffusion index and key leading indicator of non-residential construction activity (9-12 months), fell to 44.8 in September from 48.1 in August (AIA). 


Furniture/Furnishings Weekly - Weak Signals for Office Furniture

Equity Bottom-Up

<div><div><div><ul style="list-style-type: disc;"><li><p>MillerKnoll earnings sparked a second week of outperformance for the commercial/contract furniture stocks, which rose ~8% in a week when broader indices were roughly flat.</p></li><li>MLKN reported adjusted EPS of $0.37 in 1QFY24, above consensus of $0.21 consensus, and upped guidance.</li><li>Shares jumped 27% on Wednesday. All three major US firms in the sector advanced last week.</li></ul></div></div></div>

MillerKnoll earnings sparked a second week of outperformance for the commercial/contract furniture stocks, which rose ~8% in a week when broader indices were roughly flat.MLKN reported adjusted EPS of $0.37 in 1QFY24, above consensus of $0.21 consensus, and upped guidance.Shares jumped 27% on Wednesday. All three major US firms in the sector advanced last week.

Furniture/Furnishings Weekly  - MLKN Results Boost Sector; Consumer Confidence Dips

<ul style="list-style-type: disc;"><li><p>In a week when the broad market indexes retreated by ~3%, the positive earnings report from Steelcase, Inc. (SCS) provided a boost for all the Commercial/Contract Furniture issues.</p></li><li><p>SCS results supported a view that demand in the office furniture sector had troughed.</p></li><li><p>CFO Dave Sylvester noted that the weekly pace of orders in its Americas segment was steady through its fiscal 2Q and into 3Q and that the Y/Y order comparison for the first few weeks of September was up by ~18%. For details, see our update note from September 22.</p></li></ul>

In a week when the broad market indexes retreated by ~3%, the positive earnings report from Steelcase, Inc. (SCS) provided a boost for all the Commercial/Contract Furniture issues.SCS results supported a view that demand in the office furniture sector had troughed.CFO Dave Sylvester noted that the weekly pace of orders in its Americas segment was steady through its fiscal 2Q and into 3Q and that the Y/Y order comparison for the first few weeks of September was up by ~18%. For details, see our update note from September 22.

Furniture/Furnishings Weekly - SCS Results Boost Commercial/Contract Furniture Sector

United States

Sleep Number Corporation designs, manufactures, and markets a line of air bed mattresses. The Company provides a variety of beds, bedding, pillows, mattress pads and layers, sheets, duvets, bed skirts, bases, furniture, bed accessories, and kids blankets. Sleep Number serves customers in the United States.

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Select Comfort (SNBR US)

Furniture/Furnishings Weekly - Office Furniture Back in Focus After Strong HNI Quarter

HNI’s 3Q report reinforced the sector story. Sales remain challenging. Improved pricing, a focus on costs, and eliminating unprofitable...

Water Tower Research

Furniture/Furnishings Weekly - Earnings Misses Lead Home Furnishings Lower

Home goods retailers and furniture manufacturers fell in a week of tough earnings news. Ethan Allen Interiors (ETD) reported adjusted EPS of $0.63...

Water Tower Research

Furniture/Furnishings Weekly - Weak Signals for Office Furniture

The office furniture group fell 6% last week, breaking a streak of outperformance, as indicators pointed to weakness. The office furniture group is...

Water Tower Research

Furniture/Furnishings Weekly - MLKN Results Boost Sector; Consumer Confidence Dips

MillerKnoll earnings sparked a second week of outperformance for the commercial/contract furniture stocks, which rose ~8% in a week when broader...

Water Tower Research

Furniture/Furnishings Weekly - SCS Results Boost Commercial/Contract Furniture Sector

In a week when the broad market indexes retreated by ~3%, the positive earnings report from Steelcase, Inc. (SCS) provided a boost for all the...

Water Tower Research

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