Why Williams-Sonoma Stock Is Down Today
The home goods retailer reported weak second-quarter sales.
stock of Williams-Sonoma (WSM -7.51%) The luxury furniture company’s stock fell today after it missed top-line revenue estimates and reported a decline in like-for-like sales in its second-quarter report.
As of 10:56 a.m. ET, the stock was down 8.5% on the news.
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Williams-Sonoma still faces headwinds
Like most furniture manufacturers, Williams Sonoma is struggling in the current environment as the sluggish housing market reduces demand for furniture, home décor and kitchenware.
As a result, same-brand sales for the quarter declined 3.3%, and overall revenue fell 4% to $1.79 billion, missing the consensus target of $1.81 billion.
However, gross margin increased 550 basis points to 46.2% due to increased product margins and improved supply chain efficiency. Selling, general and administrative (SG&A) expenses also increased 390 basis points to 30% due to increased performance-based compensation and advertising spending.
As a result, operating margin increased 160 basis points to 16.2%, and earnings per share (EPS) increased 12% to $1.74, beating estimates of $1.60.
CEO Laura Alber cited “improving top-line revenue trends, increasing market share and maintaining our commitment to profitability.”
Can Williams-Sonoma Recover?
Williams-Sonoma’s guidance update was mixed, with revenue forecasts projected to decline 1.5% to 4% for the full year, indicating continued headwinds in the furniture segment. However, the company raised its operating margin guidance to a range of 18% to 18.4%, meaning it maintained its EPS guidance. Analysts expect EPS to improve to $7.28 to $8.21 this year.
But there is good news for investors: Interest rates are expected to start falling at the Fed’s next meeting in September, supporting a recovery in the housing market that could help Williams-Sonoma return to sales growth.
At current prices, the stock looks like a solid value with a forward P/E of 16.3. I expect Williams-Sonoma stock to rally further as the housing market recovers.
Jeremy Bowman has no positions in the stocks mentioned. The Motley Fool has a position in and recommends Williams-Sonoma. The Motley Fool has a disclosure policy.
