What To Expect From Williams-Sonoma's Q2 Earnings? Analyst Sees Chance For Positive Surprise

Wedbush analyst Seth Basham reiterated a Neutral rating on Williams-Sonoma, Inc. WSM, with a price target of $120.

WSM will report its 2Q23 earnings on Wednesday, August 24.

While investor expectations are low, the analyst sees potential for an earnings beat as the company tightly manages expenses. The analyst noted sales pressures—particularly for its key growth brand West Elm (~25% of sales) are likely to continue to cloud the outlook.

Basham sees modest downside risk to the consensus comp estimate of -8% based on weak Census Bureau category sales data, negative read-throughs from competitors, negative third-party data points, and soft Google Trends data.

The analyst adds that WSM’s efforts to clear excess inventory could have weighed on comps and merchandise margin, particularly in a highly promotional industry environment.

Basham expects 2Q gross margins to decline 460 bps y/y to 38.9%, modestly better than the consensus of 38.7% estimate, expecting lower freight costs.

At the same time, the analyst projects WSM to continue closely managing costs, including advertising and personnel, driving the 26.5% SG&A margin rate estimate (vs. consensus’ 27.1%), and operating margin estimate of 12.4% (vs. consensus 11.9%) and EPS of $2.77 (vs. consensus $2.70).

Looking forward, Basham expects WSM to reduce its FY23 revenue growth guidance of -3% to +3% by ~300 bps given the macro headwinds and despite potential share gains from Bed Bath’s demise.

The analyst cautions that it will be difficult for the company to deliver 2023 operating margins in the top half of its current 14% to 15% guidance range.

For the quarter to be reported, the analyst expects revenues of $1.927 billion, lower than the $1.975 billion forecasted earlier. The EBITDA in the quarter to be reported is expected to be $294.9 million. The EPS is projected to be $2.77, lower than the earlier forecast of $3.25.  

Price Action: WSM shares are trading lower by 0.54% to $131.99 on the last check Thursday.