Demand Moves Toward Stabilization & Growth in 2024
The Q4 Furniture Retailer survey completed by Piper Sandler in partnership with the Home Furnishings Association (HFA) saw Q4 demand (written sales) improve from Q3 to an average decline of -3.6% y/y. December, at +1% (mean) and +4% (median), was not only the strongest month of Q4 but also the strongest for 2023. For Q1 2024, retailers forecast demand to improve quarter over quarter to flattish, while all of 2024 was forecasted to grow +3%. Macro data in this report suggests the Furniture industry is bottoming and has over-corrected following two years of notable year-over-year declines. Based on our survey results and economic data, Piper Sandler believes the industry is moving toward stabilization, with the potential for sales gains to accelerate as 2024 progresses.
- Q4 Written Sales (Demand) Still Down Y/Y, But Showing Improvement. Q4 written sales year over year declined -3.6% (mean) and -4.5% (median) y/y, representing an improvement from Q3 lows of down -8%/-10% and rather more in-line with Q2 trend. Also, on a 2-year basis, written sales in Q4 improved to -9.4% (vs. Q2/Q3 at -13% to -15%).
Delivered Sales remained under pressure, declining -10% (mean) and -12% (median) year over year, representing a slight improvement from the Q3 lows of down -13%/-14% but slightly worse off than Q1 and Q2. We do believe written sales are a much better indicator of current demand trends vis-a-vis delivered sales. - Q1 & 2024 Outlooks. Retailers expect Q1 written sales to improve from Q4 to down -0.5%/flat year over year, and 2024 total sales (stores + online) to be up +3% on both a mean/median basis.
- Survey Background. Our Furniture Retailer Survey comprises 10-12 regional retailers representing >400 stores. We have geographic representation across much of the U.S.
- Macroeconomic Data Suggests a Furniture Industry Bottom that Has Over-Corrected. Univ. of Michigan Consumer Sentiment data shows improved sentiment
toward buying large household durables (e.g. Furniture). Furniture spending (as defined by PCE data) on a real (inflation-adjusted) basis shows industry unit demand is 4% below the pre-COVID trend. Meanwhile, many other consumer spending areas (apparel, restaurants, travel, etc.) remain above pre-COVID levels (on a real basis). - Company Call-Outs (W, ARHS, BYON). Our view that home furnishings sales are trending toward improvement following 2-years of a severe industry-wide recession bodes well for furniture names under coverage. W (OW, $93 PT) is our favorite mid-cap pick as we see the potential for substantial EBITDA growth over the next 2-3 years on accelerating sales growth combined with a shift toward cost controls and efficient spending (as evidenced by Friday’s headcount reduction announcement). ARHS (OW, $15 PT) has shown strong demand growth since coming public – and we expect demand comp acceleration through 2024 as industry trends improve, ARHS laps its June price cut of -MSD% and new store maturation benefits kick in following accelerated unit growth in 2023. Yet ARHS trades at a 60% and a 17% discount to RH and WSM, respectively (on an EBITDA basis). We see substantial long-term potential for both store and comp growth as higher-income consumers continue to discover ARHS.
Download the full Furniture Retailer Survey report. Piper-Sandler_2023-Q4 Report
