The retail environment is challenging, and there are weaknesses to be aware of. Shifting consumer habits have them focused on dailies, health & beauty more than discretionary items, which impacts names like Walmart (NYSE: WMT) and Target (NYSE: TGT). Investors should not assume that discretionary spending is $0 because other retailers, such as TJX Companies (NYSE: TJX), are growing in home goods and lifestyle categories, and eCommerce players are in an even better position.
Names like RH (NYSE: RH), Williams Sonoma (NYSE: WSM), Wayfair (NYSE: W), Arhaus (NASDAQ: ARHS), and Overstock.com (NASDAQ: OSTK) have seen their share prices plummet over the past year, but the bottom is in. The takeaway from the Q2 reporting season and outlook for Q3 and Q4 is that the higher-end home and lifestyle market is normalizing at a level higher than in 2019, growth is back in the picture, margins are improving, and the analysts are supporting the market. If these trends continue, online lifestyle retailers should be able to complete their reversals by the end of the year, and some have high-double-digit upside potential.
RH Pulls Back On Cautious Guidance
RH was among the last to report Q2 results, and the news caused shares to fall. The details included top and bottom-line outperformance and an increase in guidance that was viewed as cautious. The takeaway is that the pullback in price action is a buying opportunity due to the outlook for sequential growth, earnings, and the analysts' sentiment. Marketbeat.com is tracking 12 analysts with current ratings; 8 made revisions following the Q2 release, and they are leading the market higher.
They rate the stock at Hold but see it moving up 12% at the consensus, and the consensus is trending strongly higher. It is up 18% since last quarter and may increase by the year's end. The biggest risk is short interest. This group is heavily shorted, and RH has the highest short interest, 25%. This will produce volatility regardless of the stock price direction.
Williams-Sonoma for Value and Yield
Williams-Sonoma is the only stock to offer a dividend in this group, and it is an attractive payout at 2.5%, with shares at 10.25X earnings. Williams-Sonoma is committed to distribution growth and has increased for 17 consecutive years with a 15% CAGR over the past few. The distribution growth outlook is supported by long-term guidance, which targets mid-to-high single-digit growth. That guidance was reiterated in the last report, which included mixed results.
The top line was weak, but the margin was strong, and earnings were above consensus. This led to a guidance readjustment, which included sequential revenue growth, albeit reduced revenue and no change to earnings.
The analysts' data for WSM is the most bearish of these stocks but also shows a bottom in sentiment. The consensus rating is Reduce due to downgrades earlier in the year, but the post-Q2 release activity includes 12 boosted price targets and an upgrade. The consensus price assumes fair value near the current price action but is trending higher than last month and last quarter.
Wayfair’s Consensus Target Nearly Doubles Quarter to Quarter
Wayfair’s Q2 results included slowing contraction, outperformance, increased guidance, and an outlook for break-even results in 2024. This has the analysts raising targets for results and the stock price showing signs of support near critical levels. The analyst’s consensus assumes about 30% of upside for the market, and it is trending strongly higher, up nearly 100% since the prior quarter.
The consensus rating is also trending higher to Moderate Buy from Hold and has Wayfair in 13th position on Marketbeat’s list of Most Upgraded Stocks.
Arhaus: A House that Is Still Growing
Arhaus’s growth has slowed considerably, but the company is still growing, at least in the 1st half of 2023. The consensus for Q3 has the company in a slight contraction. Still, the low-single-digit pullback is nothing compared to the higher double-digit declines posted by the larger, more established players.
Details from its Q2 results include mixed top and bottom line results but solid margin and narrowed guidance with a mid-point above the consensus target. Analysts rate this stock at Moderate Buy with a price target roughly 50% above the current action. More importantly, the stock is trading below the analysts' low price target and appears to be at value levels.
Overstock.com: Is It Time to Load Up?
Overstock.com made news this summer when it purchased assets and IP from Bed, Bath & Beyond. The company did not buy leases, inventory, or warehouses but acquired the website, app, and name. OSTK and BBBY execs say the brand and eCommerce platform are a win for the company and will help it reach more consumers.
Overstock is already redirecting consumers to the BBBY site: merging the 2 adds thousands of new SKUs to the Overstock line-up, not counting the overlap. 8 analysts are Holding this stock; they see it moving up roughly 100% from current price levels.