Following a significant increase in April, consumer credit
increased once again in May. Automobile purchases made up the
largest slice of consumer borrowing.
But revolving credit also increased, which indicates that an
improving labor market and stock market gains have boosted consumer
confidence. This has coincided with higher appliances and furniture
sales, indicating an economic recovery.
Consumer Credit Rises
The Board of Governors of the Federal Reserve System reported
yesterday that consumer credit increased by $19.6 billion in May,
following a $26.1 billion increase in April. This increase in the
indicator of potential future spending levels was more than the
consensus estimate of an increase by $17.5 billion.
Consumer credit increased at a seasonally adjusted annual rate of
7.50%. Non-revolving credit increased at an annual rate of 9.25%.
Revolving credit rose at an annual rate of 2.50%.
Home Sales Surge
The basis for the revival of home furnishings and building
materials is the fact that housing data itself is on the positive
side. Sales of new single-family houses increased 18.6% from
April's revised rate of 425,000 to a seasonally adjusted annual
rate of 504,000 in May. New home sales for the month of May
increased to the highest level in six years.
Existing home sales rose 4.9% to a seasonally adjusted annual rate
of 4.89 million in May from an upwardly-revised 4.66 million in
April. This was also the fastest pace of increase in seven months.
The pending home sales index, a forward looking indicator based on
contract signings, went up 6.1% to 103.9 in May. Further, May's
6.1% increase turned out to be the largest month-over-month gain
since April 2010. It also touched the highest level in eight
The Silver Lining of Retail Sales
The U.S. Department of Commerce reported that seasonally adjusted
sales of retail and food services rose 0.3% in March, less than the
previous month's gains of 0.5%. This rise in retail sales in May
was also less than the consensus estimate of an increase of 0.6%.
Excluding motor vehicles sales, retail sales increased 0.1%, less
than the consensus estimate of a 0.4% increase.
However, April's numbers were revised upward from the earlier
reported increase of 0.1% to an impressive 0.5%. Taken together
with these new numbers, May data looks much stronger.
Apart from auto sales, building materials were the only other
bright spot for retail sales in May. Sales at stores like
The Home Depot, Inc.
Lowe's Companies Inc.
), which sell building materials, increased 1.1%. Such gains are
usually witnessed in spring, when winter's chill recedes. Nearly,
every other sector suffered reverses.
Another significant development was the spurt in sales at
home-furnishing and furniture stores. Sales touched a seasonally
adjusted figure of $8.55 billion in May. This is the highest
monthly figure in six years. An increase in expenditure on carpets,
couches and similar products supports upbeat home sales data.
This is also in keeping with the latest consumer credit numbers. It
implies that consumers were willing to spend on more expensive
items after reducing their credit card bills for several years.
Such big-ticket items are often purchased on credit.
Additionally, last month, home furnishings major
Restoration Hardware Holdings, Inc.
) reported spectacular first quarter fiscal 2014 results. The
company's earnings of 18 cents per share grew threefold year over
year. The bottom line was driven by a robust 22% surge in the
company's net revenues of $366.3 million.
Data on retail sales, consumer credit and the housing sector all
indicate that the environment for home furnishing companies is
quite conducive. Below we present three stocks which possess the
potential to grow appreciably in this environment, each of which
also has a good Zacks Rank.
) is a leading specialty retailer of home décor products in the
United States. The company sells framed art, mirrors, candles,
lamps, picture frames, accent rugs, garden accessories and
artificial floral products. The company's stores also offer holiday
merchandise as well as throughout-the-year gifts.
The company operates through its stores under the names of
Kirkland's, Kirkland's Home, Kirkland's Home Outlet, Kirkland's
Outlet and The Kirkland Collection. The company also operates
online through its website www.kirklands.com.
Kirkland's holds a Zacks Rank #2 (Buy) and has expected earnings
growth of 22.40%. The forward price-to-earnings ratio (P/E) for the
current financial year (F1) is 17.73.
Tempur Sealy International Inc.
) is involved in the development, manufacturing and marketing of
bedding products primarily in North America and internationally. It
provides mattresses, adjustable bases, pillows and other sleep and
The company's brand portfolio includes Tempur, Tempur-Pedic, Sealy,
Sealy Posturepedic, Optimum and Stearns & Foster. Tempur Sealy
International, Inc., formerly known as Tempur-Pedic International
Inc., is headquartered in Lexington, Kentucky.
Currently the company holds a Zacks Rank #2 (Buy) and has expected
earnings growth of 16.90%. It has a P/E (F1) of 21.53.
) is aspecialty retailer of home products which uses multiple
channels to reach its customers. The company sells its products
through its own retail stores in the U.S., Canada and Puerto Rico
It also has franchisees in certain countries in the Middle East.
The company also uses catalogs and the Internet to reach its
customers. The retail segment sells its products using five
merchandising concepts: Williams-Sonoma, Pottery Barn, Pottery Barn
Kids, Rejuvenation and West Elm.
The direct-to-customer segment sells similar products utilizing
seven merchandising concepts Williams-Sonoma, Pottery Barn, Pottery
Barn Kids, PBteen, Rejuvenation, Mark and Graham and West Elm.
Apart from a Zacks Rank #2 (Buy), Williams-Sonoma has expected
earnings growth of 13.30%. It has a P/E (F1) of 22.85.
With growth expected to pick up in the second quarter, consumers
are expected to have more spending dollars at their disposal.
Combined with positive news on the jobs front, this makes these
three home furnishing stocks excellent options for your
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HOME DEPOT (HD): Free Stock Analysis Report
LOWES COS (LOW): Free Stock Analysis Report
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KIRKLANDS INC (KIRK): Free Stock Analysis
RESTORATION HDW (RH): Free Stock Analysis
WILLIAMS-SONOMA (WSM): Free Stock Analysis
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