Sell-Side Sour On Williams-Sonoma Leading Into Q4 Print

Wall Street is expecting a soft quarter from Williams-Sonoma, Inc. WSM, which is reporting its fourth quarter numbers Wednesday.

Michael Lasser of UBS said Williams-Sonoma’s top-line and margins remained under pressure during the fourth quarter, as supply chain improvements were probably more than offset by some fixed cost deleverage from sluggish sales growth and e-marketing investments.

Lasser expects EPS of $1.50, which is slightly below the consensus of $1.51. The analyst also sees brand comp of -0.5 percent. The analyst noted industry trends remained sluggish and Wayfair Inc W and Homegoods continued to take share.

Lasser, who has a Neutral rating on the shares, said though the company is navigating these issues better than others, it's still not completely immune to these pressures.

“[W]e think the company will be conservative in its FY'17 outlook given the current uncertain industry environment,” Lasser wrote in a note.

Though the company has good plans in place to improve supply chain, the stock probably doesn’t work in a meaningful way until its sales re-accelerate.

2017 Outlook In Focus Amid Heavy Short Interest

Similarly, Credit Suisse’s Seth Sigman reiterated his Neutral rating on Williams-Sonoma and sees fourth quarter EPS of $1.48, with comps of -1 percent. The analyst, who also expects weaker gross margin and in-line expenses, sees risk to medium term EPS.

“The key risks we see: over the next year, we believe that the combination of sluggish comps, incremental gross margin pressures from shipping and discounting, and higher investments will pressure EPS more than expected,” Sigman wrote in a note.

For the first quarter, the analyst sees a modest sequential improvement in comps at -0.5 percent versus estimated -1.0 percent in the fourth quarter.

Further, Sigman said the company’s 2017 guidance should be below "long term" targets. The analyst sees EPS of $3.45 versus consensus of $3.63. The analyst models comps of 1 percent, relatively in line with the Street.

Meanwhile, sentiment already seems quite low, with short interest still hovering around 20 percent and buy-side estimates seemingly well below consensus.

Lasser has a price target of $53, while Sigman cut his price target to $44 from $50.

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