Driven largely by online sales, the global luxury home furnishings market is expected to hit nearly $39 billion by 2031, suggesting an impressive annual growth rate of 5.2%. Two major players in the industry are RH(NYSE: RH) and Ethan Allen Interiors(NYSE: ETD).
Read on to find out which of these two high-end furnishers makes the better buy in today's market.
RH: Building luxury from the ground up
RH operates a luxury brand offering home furnishings for the affluent lifestyle. Formerly known as Restoration Hardware, the company sells high-end home goods through retail galleries, outlet stores, catalogs, and online through its e-commerce store.
The Corte Madera, California-based company describes itself as "a curator of design, taste, and style in the luxury lifestyle market." Indeed, RH offers one of the largest integrated selections of upscale furniture, lighting, textiles, rugs, décor, and outdoor home items.
Last month, the company made news when it launched RH Guesthouse, a "first-of-its-kind hospitality experience" located in New York City. Flipping the traditional hotel model on its head, RH Guesthouse offers ultra-lavish stays "designed to erase the chaos of the outside world." The facility is complete with a rooftop pool and garden, fine dining, opulent amenities, and soon to be available -- two private RH jets for chartered transportation.
RH has proven itself to be shareholder-friendly of late, with impressive earnings-per-share growth of 56% over the past three years. The company also saw its net revenue increase by $3.8 billion last year, a 32% increase year over year and a 42% increase compared to 2019. Not only that, investors can also rest assured that RH's insider stake of roughly 13% to 14% demonstrates a vested interest in its own success.
Image source: Getty Images.
Ethan Allen Interiors: A well-oiled machine
An international iconic luxury brand, Ethan Allen Interiors designs, manufactures, and sells high-end home furnishings. Originally founded in 1932, Ethan Allen has a rich history and long-standing reputation for high-quality, stylish products.
Headquartered in Danbury, Connecticut, Ethan Allen purveys products through its retail network of roughly 300 design centers in the U.S. and Canada -- as well as independently operated locations in Asia, the Middle East, and Europe. In addition to visiting Ethan Allen design centers, customers can also purchase items online through the company's website.
Ethan Allen's ability to independently manufacture its own products presents a significant competitive edge over RH. Roughly 75% of Ethan Allen's home furniture is made in North America, meaning better quality control. Combined with the company's integrated logistics network, it means a more streamlined and efficient supply chain to retail outlets. This presents a distinct advantage over RH, which produces the majority of its products in China, India, and Indonesia, although the majority of its products are sold in North America. RH is therefore much more susceptible to recent supply chain woes, including product shortages and high fuel costs.
Currently, Ethan Allen faces headwinds including a higher-than-normal production backlog and increased inflation amid a slowing economy. Despite these challenges, CEO Farooq Kathwari feels the company is "well-positioned" due to its current product lines, robust logistics network, and healthy balance sheet. Ethan Allen's long-term investors should be happy -- the stock's cash dividends have more than quadrupled over the last decade.
Which is the better buy?
To gauge which of these consumer discretionary stocks makes the better buy at the moment, let's compare market capitalizations, price-to-earnings ratios, and price-to-sales ratios.
| Metric | RH | Ethan Allen Interiors |
|---|---|---|
| Market capitalization | $6.3 billion | $572 million |
| Price-to-earnings ratio | 11.86 | 5.58 |
| Price-to-sales ratio | 1.63 | 0.699 |
Data source: E*Trade, company reports
A lower price-to-earnings and price-to-sales ratio -- not to mention an enticing dividend yield of 5.67% -- make Ethan Allen today's winner. However, with a much higher market cap, RH has clearly earned much more of Wall Street's attention and respect.
And while Ethan Allen's high dividend is attractive now, the stock could suffer if future payments are reduced. Fortunately, Ethan Allen's payout ratio currently stands at a modest 29%. If the luxury home furnishings segment remains on a growth trajectory, both of these furniture purveyors stand to benefit.
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Micah Angel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends RH. The Motley Fool has a disclosure policy.
