Furniture Stocks Tumble on Trump Tariffs. Levies Could Stifle a Turnaround.

Telsey Advisory Group believes RH’s sales would be especially affected by new tariffs on imported furniture. (Business Wire)

Investors were pulling out of furniture stocks on Monday, spurred by fears President Donald Trump’s new tariffs will deal a heavy blow to an already beat-up industry.

Trump announced Friday he was launching an investigation into setting new tariffs on furniture imports, aimed at bringing production back stateside. Many U.S. firms currently source from countries such as China and Vietnam, some of the world’s biggest furniture manufacturers.

Those imports are already subject to new tariffs of 10% and 20%, respectively. Trump said the furniture rate was yet to be determined, but will be set within the next 50 days.

The announcement prompted a broad selloff of sellers heavily reliant on imports. Wayfair stock was off 5%, Williams-Sonoma 1.6%, Arhaus 2.4%, RH 4.5%, and Lovesac 5.4%.

The pullback seems particularly stark given furniture stocks had seen a run-up in the past couple of months, rising nearly 70%, on average, since tariff-related lows earlier this spring, according to William Blair analyst Phillip Blee. Investors have been looking for stocks that could benefit from eventual rate cuts and a potential housing turnaround, he wrote in a research note Monday.

Plus, before Friday’s announcement, tariff concerns had largely abated as rates started to settle, with both consumers and investors coming to terms with the new business conditions and higher prices. Those worries rose to the surface again on Monday, and will likely put the rally on pause—at least in the near term.

“We believe the space will experience a selloff and remain pressured until there is some visibility at the end of the investigation,” Blee wrote. “However, we believe there could be a compelling buying opportunity at some point over the next month; if history repeats itself, tariff concerns will be overblown compared with the end-result.”

And indeed, Trump has walked back on tariffs more than once in the past couple of months, paring them back in response to market objections or successful negotiations.

But the announcement does introduce an element of uncertainty that will make it hard for retailers and investors to plan out their immediate next steps.

Because if the eventual outcome is for more levies, it would be a significant hit to an industry already straining under tariffs and a tough demand environment, wrote Cristina Fernández, an analyst at Telsey Advisory Group.

For one, consumer prices are likely to move even higher in the coming months. That could cause a short-term surge in demand as consumers rush to buy things before prices get any higher, noted Jonathan Matuszewski, an analyst at Jefferies. Longer term, however, it could weigh on overall demand. Retailers may also expedite imports to get ahead of the levies, which could result in near-term costs that may weigh on bottom-line growth.

The industry will likely turn toward domestic manufacturing as a way to offset those problems, but that shift won’t be immediate.

“Retailers have been swift to move production out of China, but outside of upholstery, shifting production to the U.S. for products like casegoods and patio furniture would take time and significantly raise prices for consumers,” Fernández wrote.

That may give an advantage to companies with bigger U.S. manufacturing capabilities. Ethan Allen and La-Z-Boy were up 1.3% and 0.5%, respectively, Monday afternoon. La-Z-Boy has production plants in Tennessee, Missouri, and Arkansas, plus three in Mexico. Ethan Allen has seven plants in the U.S., three in Mexico, and one in Honduras.

These companies may also soon become attractive M&A targets or strategic partners for competitors without a strong production foothold in the U.S., Matuszewski wrote, which could drive up their value.

Companies that derive a big chunk of their revenue from imported furniture sales are in a trickier spot. Fernández estimated that RH could have the highest number of sales exposed to a sector-specific tariff, with 61% of its sales comprised of imported furniture. Arhaus followed at 54%.

Pottery Barn and West Elm parent company Williams-Sonoma only sources about 18% of its goods in the U.S., according to Fernández’s calculations, but may be better off than some of its peers given that about half of the merchandise it sells is home décor, bedding, food, and other items that may not necessarily be subject to the furniture-specific levy.

It seems the price of a chair is no longer just the sum of its parts. It’s also the sum of its tariffs.

Write to Sabrina Escobar at sabrina.escobar@barrons.com