Williams-Sonoma, a notable player in the home furnishing sector, is currently navigating a complex macroeconomic landscape that presents notable challenges. According to a recent report from Wedbush Securities, the retailer is expected to experience 'limited' downside risks to its consensus estimates for the fiscal second quarter and the full year.
This assertion comes in light of a projected 15% decline in engaged traffic for the quarter, a shift from the previous quarter's already concerning 11% drop. Wedbush anticipates only modest downside to its comparable sales forecast, projecting a 1.9% decline in comparable sales. In contrast, the consensus estimate suggests a higher decrease of 2.7%.
This discrepancy indicates that while the actual decline might hover in the 3% to 4% range, it remains manageable. Williams-Sonoma is set to unveil its results for the July quarter on Thursday, an event that many market watchers are keenly anticipating. The report highlights that even amid subdued sales, there are still 'modest' downside risks to Wedbush's earnings per share (EPS) estimate of $1.60, along with the consensus' slightly higher projection of $1.61.
Currently, analysts suggest that a level of $1.55 is plausible, with margins potentially remaining stable, a point emphasized by a collective group of analysts, including the notable Seth Basham. Wedbush expresses confidence in its second-quarter margin estimates, despite the overarching sales softness in the sector. Heading into the print, the brokerage adopts a positive outlook on Williams-Sonoma, driven by a mix of limited investor expectations and the potential for capturing market share within its two key brands, Pottery Barn and West Elm.
The firm has reiterated an 'outperform' rating and set a price target of $175 for the stock. According to Wedbush, the company's performance is positioned for 'at worst a modest miss and guidance down'. 'While some investors anticipate a significant miss and lowering of guidance, we believe there is limited downside in both the quarter and the annual outlook,' Basham commented.
He added, 'We think that Williams-Sonoma is adeptly navigating the tough demand environment by focusing on attractive products that offer solid value and compelling storytelling.' Looking at the broader market dynamics, web traffic and commentary from competing retailers like Wayfair and Arhaus indicate a general decline in demand during July.
Notably, both West Elm and Pottery Barn experienced year-over-year traffic increases of 7% and 11%, respectively, during the first two months of the quarter. However, this positivity waned as traffic at both brands dipped by 3% in July. Overall, for the second quarter, West Elm's engaged traffic saw a year-over-year increase of 3%, signaling a reduction in growth rate from the first quarter, while Pottery Barn noted an improvement of 6%—a welcome sign following a decline of 5% in the previous quarter, as Basham pointed out.
As of now, Williams-Sonoma's stock is trading at $139.05, reflecting a change of +1.20 or an increase of +0.87%. With all these factors in play, investors and analysts alike are urged to keep a close watch on how Williams-Sonoma navigates the remaining part of the fiscal year..