Wedbush maintained its Neutral rating on Williams-Sonoma, Inc. WSM after the company missed fourth quarter top line expectations, but beat bottom line estimates on supply chain efficiencies.
Comps Pressure At Pottery Barn
Williams-Sonoma faced continued comps decline at the core Pottery Barn brand, while West Elm comps also decelerated sharply. Consolidated comps of -0.9 percent, well below consensus +0.7 percent estimate, with Pottery Barn comps of -4.1 percent missing consensus expectations of -2.3 percent.
The company doesn't think the Pottery Barn brand needs a “fundamental reset” based on its consumer research and noted it has been successful in introducing new customers to the brand via lower prices and diversification.
“Nonetheless, the improvement has yet to be reflected in sales performance and a new brand President may look to make additional changes. Despite a long history of solid growth, we remain concerned about fading brand relevance,” analyst Seth Basham wrote in a note.
The company’s key growth engine, West Elm also reported lower comps at 6.5 percent versus 12 percent in the third quarter, 15.8 percent in the second quarter and 19 percent in the first quarter.
Investment At Cost Of Margins
Williams-Sonoma has plans to invest in advertising and technology to improve sales performance at the cost of margins, resulting in 2017 EPS guidance below consensus and a withdrawal of the company’s three-year EPS growth goal.
“While we believe these are appropriate moves and WSM shares may react positively this morning given heightened negative sentiment, we remain sidelined without evidence that the company will be able to slow investments and return to material growth in the medium-term,” Basham added.
Shares of Williams-Sonoma closed Wednesday at $48.12. In the pre-market hours, the stock is up 2.64 percent to $49.39. The analyst has a price target of $48.
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