The consumer price index (CPI) increased 8.3% year-over-year in August. The higher-than-expected inflation paved the way for the Fed to lift interest rates by 75 basis points last week. The central bank also hinted at maintaining its hawkish stance, raising inflation concerns.

Surging inflation and interest rates are taking a bite out of homeowners’ budgets and have weighed significantly on the home improvement sector. Several homeowners have delayed big renovation projects as prices for building materials, fixtures, and appliances jumped, impacting builders and remodeling contractors hard.

Furthermore, the growth in homeowner spending for improvements and repairs is expected to soften during the first half of the next year. According to the Leading Indicator of Remodeling Activity (LIRA), year-over-year gains in remodeling expenditures for owner-occupied homes will decline from 17.4% this year to 10.1% by the first half of 2023.

Given this backdrop, we think it could be wise to avoid fundamentally weak home improvements stocks Bed Bath & Beyond Inc. (BBBY), Purple Innovation, Inc. (PRPL), and Kirkland's, Inc. (KIRK).

Bed Bath & Beyond Inc. (BBBY)

BBBY is an omnichannel retailer offering a range of domestic merchandise such as bed linens, bath items, kitchen textiles, home furnishing items, and various juvenile products. The company sells its products through its website and under ten brands: Bee & Willow, Marmalade, Nestwell, Haven, Simply Essential, Our Table, Wild Sage, Squared Away, Studio 3B, and H for Happy.

In the fiscal first quarter that ended May 28, 2022, BBBY’s net sales decreased 25% year-over-year to $1.46 billion. Its gross profit declined 44.9% year-over-year to $349.31 million, while its operating loss widened 371.9% from the year-ago value to $339.16 million. BBBY’s adjusted net loss came in at $225.23 million, compared to an adjusted net income of $4.93 million in the year-ago period.

Also, its adjusted EBITDA loss came in at $223.54 million, compared to an adjusted EBITDA of $86.07 million in the same quarter last year. The company’s adjusted net loss per share amounted to $2.83, compared to an EPS of $0.05 in the prior year period.

Analysts expect BBBY's EPS to be negative for the quarter that ended on August 31, 2022. Its revenue is expected to decline 27.1% year-over-year to $1.45 billion in the about-to-be-reported quarter. BBBY has missed the consensus EPS estimates in each of the trailing four quarters.

BBBY has declined 72.2% over the past year to close the last trading session at $6.37.

BBBY's POWR Ratings reflect this bleak outlook. The stock's overall D rating translates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has an F grade for Stability and Sentiment and a D for Growth, Momentum, and Quality. It is ranked #58 of 62 stocks in the Home Improvement & Goods industry. Click here to see BBBY’s rating for Value.

Purple Innovation, Inc. (PRPL)

Comfort solutions provider PRPL is engaged in the designing and manufacturing of various branded and premium comfort products, including mattresses, pillows, cushions, bases, and sheets. It markets and sells its products through direct-to-consumer online channels and wholesale channels.

PRPL's net revenue decreased 21.1% year-over-year to $144.11 million in the second quarter that ended June 30, 2022. Its gross profit declined by 40.2% from its year-ago value to $48.81 million. The company’s adjusted net loss amounted to $8.83 million compared to a net income of $3.56 million in the year-ago period.

In addition, its adjusted EBITDA loss stood at $298K compared to an adjusted EBITDA of $11.02 million in the year-ago period. Also, its adjusted net loss per share came in at $0.11 versus an adjusted EPS of $0.05 in the same quarter last year.

Street expects PRPL's loss per share to remain negative for fiscal 2022. Its revenue is expected to decline 18.5% year-over-year to $139.14 million for the quarter ending September 30, 2022. It has failed to surpass the EPS estimate in three of the trailing four quarters.

Shares of PRPL have declined 82.7% over the past year. It closed the last trading session at $3.89.

PRPL's POWR Ratings reflect its poor prospects. The company has an overall F rating, equating to a Strong Sell in our proprietary rating system.

PRPL has a D grade for Growth, Stability, Sentiment, and Quality. Within the same industry, it is ranked #60. To see additional POWR Ratings of PRPL for Value and Momentum, click here.

Kirkland's, Inc. (KIRK)

KIRK operates as a specialty retailer of home decor and gifts in the United States. It offers a selection of merchandise, including holiday decor, furniture, textiles, wall decor, decorative accessories, art, mirrors, fragrances, and other home decorating items.

For the fiscal second quarter that ended July 30, 2022, KIRK’s net sales decreased 11% year-over-year to $102.10 million. Its gross profit declined 53.3% from the year-ago value to $18.53 million. The company’s adjusted operating loss and adjusted net loss widened significantly year-over-year to $20.75 million and $16.66 million, respectively.

In addition, its adjusted EBITDA loss came in at $16.41 million, compared to an adjusted EBITDA of $5.08 million in the year-ago period. Also, its loss per share came in at $1.31, down significantly year-over-year.

The company’s EPS for the third quarter ending October 31, 2022, is expected to be negative. The consensus revenue estimate of $135.21 million for the current quarter indicates a 5.9% decrease from the same period last year. KIRK failed to surpass the EPS estimate in three trailing four quarters.

The stock has lost 83.6% over the past year to close the last trading session at $3.18.

KIRK’s POWR Ratings reflect this bleak outlook. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.

It has an F grade for Stability and Sentiment and a D for Growth, Momentum, and Quality. Again, in the same industry, it is ranked #59. Click here to see KIRK’s rating for Value.

BBBY shares were trading at $6.46 per share on Tuesday afternoon, up $0.09 (+1.41%). Year-to-date, BBBY has declined -55.69%, versus a -22.54% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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