Charlotte, NC, May 24--Results from some major furnishings retailers last week suggest U.S. consumers may be slowing their impulsive home-oriented purchases.
Some analysts believe clothing lines that propelled retailers' sales in April are capturing dollars that had been flowing into accessories and furniture. Others said high gas prices, potentially higher interest rates and the volatile stock market might be prompting consumers to hold their wallets more tightly at the start of what's typically a seasonally slow period for home furnishings.
Bombay Co., in the midst of a multiyear turnaround, reported disappointing first-quarter sales and earnings on Wednesday, saying sales softened in the quarter due to a lack of "freshness" in its merchandise. The Fort Worth, TX retailer also said same-store sales could post as much as a low double-digit decline from a year earlier, which was exceptionally strong.
"It's tough to tell, but I don't think all of Bombay's problems are self-inflicted," said Morgan Keegan & Co. analyst Laura Champine. The fact that several companies have recently reported "fairly lousy results seems to indicate to me that impulsive purchases in the furnishings category are slowing down," she said.
Kirkland's Inc. said sales have been sluggish and traffic in its stores has been weak in all regions so far in the second quarter. Mother's Day weekend, typically the busiest weekend of Kirkland's first half, was significantly slower than expected, the Jackson, TN company said. Kirkland's cut its earnings guidance for the year, despite several promotional events planned to improve sales and increase traffic.
And though Cost Plus Inc.'s first-quarter earnings Thursday topped Wall Street's forecast, sales, gross margin and the company's initial guidance for second-quarter earnings were all below analysts' views.
Earlier this month, Pier 1 Imports Inc. cut its outlook for earnings in the May-ending quarter, as a result of weak traffic in stores and lower-than-expected April sales.
Overall, U.S. retail sales for furniture and home furnishings stores grew 0.7% in April from March, pulling back from 1.4% growth in March, but nevertheless growing more robustly than sales at clothing stores, according to preliminary data from the U.S. Commerce Department.
But retailers' same-store sales reports for April, as well as recent comments by retailing executives, point to strength coming out of apparel and other so-called softline goods rather than hardline goods, a category that includes housewares, said Crystal Lanigan, an analyst with Sanders Morris Harris.
"The strength the group (of hardline retailers) has enjoyed over the past few quarters doesn't seem to be quite as strong," she said.
"You're seeing a bit of a sector shift, from consumer discretionary into softlines in response to the strong lines coming out of fashion--a newness and color that's really giving consumers a reason to buy," Lanigan said. "And you're just not seeing that in hardlines right now."
Tiburon Research Group analyst Rob Wilson agreed. He warned in late April that Pier 1's outlook could be an indication of more disappointments.
"There are some factors that have kept apparel above water that have not done likewise for home furnishings," he said.
Several analysts note that some furnishings retailers continue to see strong sales trends, thanks to their merchandising initiatives or focus on more affluent customers.
Restoration Hardware Inc. on Thursday posted a narrower-than-expected loss in the first quarter as its turnaround strategy seemed to gain legs, sending shares up as much as 20% in trading Friday. Chief Executive Gary Friedman told analysts that sales deteriorated a bit late in the quarter, which ended May 1. Still, the company reiterated its full-year earnings forecast and estimated low- to mid-single digit growth in same-store sales for the second quarter.
Similarly, Williams-Sonoma Inc. could beat Wall Street's earnings forecast of 16 cents a share when it reports first-quarter results Tuesday, Thomas Weisel Partners analyst Anne-Marie Peterson said in a research note. Merchandising initiatives at the company's Pottery Barn chain are driving the San Francisco company's business, she said.
"Recent home furnishings retailers' results have been mixed," Peterson wrote. "However, companies that recently reported poor comps appear to be dealing with company specific issues, and we do not believe Williams-Sonoma is suffering from the same problems."
Home-improvement retailers' results this week showed no signs of weakening. Home Depot Inc. and Lowe's Cos. both reported strong first-quarter sales and boosted their earnings outlooks for the full year, boasting of continued strong sales so far in the second quarter.
Executives with the companies said purchases at their stores are often for maintenance or repair and argued rising interest rates shouldn't have a huge impact on their businesses.
Indeed, retailers like Home Depot and Lowe's are less dependent on impulsive buys, in part because they rely less on fashion trends than do Cost Plus, Pier 1 and Bombay, Lanigan said.
Regardless of how widespread any recent weakness might be, analysts generally expect strong housing trends and an improving economy will help lift sales at furnishings retailers this year.
"Ultimately you'll see the consumer come back into the hardlines sector" as the fall and holiday selling seasons arrive, Lanigan said.
Peterson owns shares of Williams-Sonoma, but none of the other analysts own shares of the companies they cover. Morgan Keegan intends to seek or receive investment-banking business with Bombay, and Williams-Sonoma has been a Thomas Weisel client.
