2 Furniture Stocks to Buy From Promising Industry Landscape

The Zacks Furniture industry, despite a 24.2% underperformance against the S&P 500 over the past year and facing macroeconomic headwinds like inflation and a sluggish housing market, is leveraging digital transformation via e-commerce, AR, and AI to capitalize on rising demand for multifunctional furniture among younger demographics, positioning it for long-term growth. With a favorable Zacks Industry Rank #72 and an attractive 9.11x forward P/E, the sector presents opportunities, particularly in companies like Virco (VIRC), which benefits from operational efficiencies and increased 2025 earnings estimates, and Sleep Number (SNBR), undertaking significant cost-cutting and a strategic reset to improve its outlook despite recent revenue declines.

Analysis

The U.S. furniture industry is navigating a dichotomy of forces, presenting a complex but potentially opportunistic landscape. On one hand, significant macroeconomic headwinds persist, including a lowered 2025 GDP growth forecast of 1.4%, an elevated inflation forecast of 3.1%, and a sluggish housing market constrained by mortgage rates between 6% and 7%. These pressures have contributed to the industry's stark underperformance, with a 24.2% decline over the past year against the S&P 500's 10.7% gain. This has driven the sector's valuation to a compelling 9.11x forward P/E, near its five-year low. On the other hand, the industry is demonstrating resilience through strategic pivots, including digital transformation with AR and AI, and a focus on multifunctional products for younger demographics. Specific companies are showcasing operational strength amidst this volatility. Virco Mfg. Corporation (VIRC), insulated by its U.S. manufacturing base, improved its gross margin to 47.5% in its first quarter and saw its 2025 EPS estimates rise from $0.79 to $1.00, signaling strong underlying fundamentals despite a 41.1% stock decline. Similarly, Sleep Number (SNBR) is executing a turnaround, offsetting a 16% year-over-year revenue drop with gross margin expansion and an aggressive cost-cutting plan targeting $80-$100 million in savings, leading analysts to narrow projected 2025 losses.

Key Decisions for Investors

• Given the industry's significant 24.2% underperformance and low 9.11x forward P/E, investors should consider a selective, stock-specific approach, as macroeconomic headwinds like a sluggish housing market cap broad sector upside.
• Virco (VIRC) presents a compelling fundamental case; its expanding gross margins, insulation from tariffs, and significant upward earnings revisions suggest its 41.1% stock decline may offer an attractive entry point.
• Sleep Number (SNBR) represents a potential turnaround play; investors should monitor the execution of its $80-$100 million cost-cutting initiative and margin performance as key indicators of a successful strategic reset under its new CEO.
• Closely track key macro data, particularly consumer confidence, mortgage rate movements, and tariff policy developments, as these factors are primary drivers of demand and sentiment for the entire furniture sector.