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As an upstream and downstream industry of real estate, the home furnishing industry is also experiencing cyclical pains.

According to Wind statistics, as of July 26, 2024, a total of 19 home furnishing companies released performance forecasts, of which 8 recorded losses and 3 saw a sharp decline in profits.

The decline in the performance of the home furnishing industry is closely related to the fact that the real estate industry is experiencing a small cycle. The halving of new home sales has brought a real impact on home furnishing companies. Against the backdrop of a decline in the performance of a few home furnishing companies last year, the overall performance of home furnishing companies has continued to decline in the first half of this year.

Among them, there are not only decoration and furnishing companies such as Guangtian Group, construction and building materials companies such as Mona Lisa and Arrow Home Furnishing, but also finished furniture companies such as Markor Home Furnishing and Qumei Home Furnishing. It can be seen that the impact of the real estate industry on the home furnishing industry is reflected in many aspects, almost throughout the entire chain of the home furnishing industry.

Faced with the dramatic changes in the home furnishing industry, home furnishing companies are also coping with cyclical fluctuations in various ways. New opportunities under the "old for new" policy and new growth momentum brought by going overseas are both hot topics in the industry. However, whether these aspects can drive home furnishing companies into a new growth cycle remains to be seen.

Unsatisfactory transcript

The performance of home furnishing companies has not been able to stop the downward trend of last year, and many home furnishing companies continue to suffer losses.

A typical example is Meek Home Furnishing. According to its previously released loss forecast announcement, it expects a net loss attributable to the parent company of between 170 million yuan and 250 million yuan in the first half of this year, and a net loss attributable to the parent company of between 260 million yuan and 340 million yuan in the same period, with a year-on-year increase in losses. Meek Home Furnishing's profit performance began to deteriorate in 2021, and it recorded its first loss in 2022, and this trend has not been reversed so far.

The reason given by Meek Home Furnishing is that due to the weakening of consumer expectations and the prosperity of the home furnishing industry, its domestic direct and franchise business revenues declined, resulting in a year-on-year decrease in operating income; in addition, it focused on cost reduction and efficiency improvement, business transformation and organizational efficiency optimization, and the adjustment of business structure during the business transformation process caused the overall gross profit margin to decline and periodic expenses to increase, resulting in a year-on-year increase in losses.

In addition to Meek Home Furnishing, the performance of two other building materials companies, Arrow Home Furnishing and Mona Lisa, was also not good.

The performance forecast previously released by the ceramic tile company Mona Lisa shows that its net profit attributable to shareholders of the parent company in the first half of 2024 will be 66.8 million yuan to 96 million yuan, a year-on-year decrease of 41.63% to 59.38%.

As for the reasons for the decline, Mona Lisa explained that the overall effective demand in the building ceramics market was weak, the industry had overcapacity, competition was further intensified, and the price war entered a fierce stage. Although it actively gave up some engineering orders with long payment terms, high collection risks, and low gross profit levels according to changes in the market environment, and deepened the implementation of a number of measures to improve quality, reduce costs, and increase efficiency, it still failed to cover the impact of changes in sales and prices. In addition, some assets showed signs of impairment, resulting in a year-on-year decline in net profit.

Arrow Home Furnishing also expects its net profit attributable to shareholders of the parent company to be between 30 million yuan and 40 million yuan in the first half of this year, a decrease of 82.49% to 76.65% compared with the same period last year; and its non-net profit to be between 13 million yuan and 15 million yuan, a decrease of 91.31% to 89.97% compared with the same period last year.

When discussing the reasons for the decline in profits, Arrow Home said that due to the continued adjustment of the real estate market and the weakening of consumer expectations, its operating income in the first half of 2024 fell by about 10% year-on-year. At the same time, affected by product prices, the gross profit margin fell by 2.68% year-on-year, resulting in a year-on-year decline in net profit.

Affected by poor performance, the share prices of home furnishing companies have also generally fallen significantly. Take Markor Home Furnishing as an example. As of July 26, Markor Home Furnishing closed at 1.47 yuan per share, with a total market value of only 2.175 billion yuan. Since the beginning of the year, the share price has fallen by 46.74%; Mona Lisa's decline over the same period also exceeded 38%, and Arrow Home Furnishing's decline was close to 44%.

New growth points remain uncertain

The sharp drop in home furnishing companies' stock prices shows that investors are pessimistic about the future of the home furnishing industry. An unnamed rating agency source told the 21st Century Business Herald reporter that the building materials and home furnishing retail industry has a low degree of concentration and is highly correlated with the prosperity of the real estate industry. As real estate enters the inventory era, demand will be on a downward trend and continue to be under pressure.

Investors believe that as the trend in the real estate industry has not been reversed, demand for home furnishings has continued to weaken, and it is difficult for the home furnishing industry to see a reversal.

A building materials dealer in Guangzhou told the 21st Century Business Herald reporter, "The overall market this year is slightly worse than the same period last year. In the first half of last year, due to pent-up demand, the performance was still good every month, and we were able to ship almost every day. This year's traditional peak season has not been very prosperous."

The overall performance is flat, and some home furnishing companies are pinning their hopes on going overseas, but they are mainly focused on customized home furnishings. On July 17, Sunpina, an overseas brand of Shangpin Home Furnishing, cooperated with Vietnam Global Decoration to open its first overseas brand store in Ho Chi Minh City, Vietnam.

Last year, OPPEIN's overseas performance grew significantly, with full-year channel revenue of 320 million yuan, a year-on-year increase of 46.5%.

In January this year, Sofia also opened a high-end customized experience center in Ho Chi Minh City, Vietnam. Sofia now has 27 overseas dealers covering more than 20 countries. At the same time, Sofia cooperates with top developers and contractors. In 2023, Sofia's overseas revenue growth rate reached 42.92%.

Although this is a trend, not all companies have the basic conditions to go overseas. Some are constrained by the characteristics of their products and face bottlenecks in going overseas.

Mona Lisa has said many times before that ceramic products are heavy and have high transportation costs, and ceramic exports have always faced the problem of high transportation costs. Although some companies have tried to "go global" and build production bases abroad in recent years, Mona Lisa currently mainly exports its products overseas and has no overseas investment and acquisition plans for the time being.

An investor who has been following the home furnishing industry for a long time also told the 21st Century Business Herald reporter that it is not easy for home furnishing companies to go overseas because of the constraints of transportation and other factors. If they want to go overseas, they have to move the entire production line, but the transfer of production lines will also bring management difficulties and market differences. "In my opinion, it will still be difficult for home furnishing companies to go overseas."

At present, with regard to investment in home furnishings, most securities investment banks are still more optimistic about leading companies, while for companies going overseas, they place more emphasis on companies with strong integration and comprehensive capabilities.

In a recent research report, Guotai Junan Securities mentioned that the recommended investment directions for the home furnishing industry include: leading domestic home furnishing companies with the ability to integrate product categories and a leading layout of integrated channels; export companies with a high degree of technical, industrial and trade integration or branding and cost-effective valuations.