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A weak housing cycle will hurt home furnishing retailers Williams-Sonoma and RH , according to Barclays. Analyst Adrienne Yih downgraded both stocks to equal weight from overweight. She also slashed her price targets on Williams-Sonoma and RH. “We are downgrading both WSM and RH on a weakening housing cycle that we believe will have a trickle-down impact on home furnishing spending over the next 12 to 24 months and high-end wallet pressure,” said in a Monday note. Home furnishing retailers such as Williams-Sonoma and RH were considered early pandemic beneficiaries as consumers took the opportunity to spruce up their homes while cloistered indoors. Even with lower demand after the economy began to reopen, the companies mustered through as home furnishing products have a longer shelf life than other retail goods such as apparel. Now, however, they’re dealing with the lagging effects of a slowing housing cycle the analyst expects will “build and worsen” over the next several quarters. Shares of Williams-Sonoma and RH are down roughly 28% and 49% in 2022. “While we commend high-end home furnishings retailers, WSM, RH, and ARHS for having navigated through COVID, we now believe the macro forces of a slowing housing cycle, (see below) will be too overwhelming to overcome despite strong company-specific execution,” Yih wrote. The analyst lowered her price target on Williams-Sonoma to $114, down from $192. It’s about 6% below where shares last closed on Friday. “Our reduced multiple takes into account consumer wallet pressures creeping upwards and impacting WSM’s core customer to a greater extent than RH’s comparatively insulated ultra-high-net-worth customer,” Yih wrote. Yih slashed her price target on RH to $243, from $328, implying shares have more than 10% downside from Friday’s closing price. Shares of Williams-Sonoma and RH are down more than 2% each in Monday premarket trading. —CNBC’s Michael Bloom contributed to this report.
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