Williams-Sonoma Stock Before Q3 Earnings: To Buy or Not to Buy?

Williams-Sonoma, Inc. WSM is scheduled to release third-quarter fiscal 2024 results on Nov. 20, before market open.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.Williams-Sonoma reported mixed results for second-quarter fiscal 2024 (ended July 30). The company’s earnings beat the Zacks Consensus Estimate, but net revenues missed the same. On a year-over-year basis, the top line declined 4% from a year ago, but the bottom line increased 11.5% from a year ago on the back of the 2-for-1 stock split completed in July.In the second quarter of fiscal 2024, Williams-Sonoma faced significant challenges, primarily stemming from macroeconomic pressures such as a slow housing market and overall economic uncertainty, which dampened consumer spending on home furnishings. Comparable sales declined 3.3%, reflecting these headwinds. The company also contended with heightened competition in a heavily promotional retail environment, where rivals relied on discounts and site-wide promotions to drive sales. However, Williams-Sonoma maintained its focus on full-price selling, which, while protecting margins, limited its ability to capture market share in a cost-sensitive consumer landscape.WSM's strategy for 2024 focuses on returning to growth, enhancing customer service, and improving margins. The company is leveraging product innovation, marketing, and e-commerce investments, including AI, to drive these goals.The business-to-business (B2B) segment grew 10%, and the company saw strong performance in global markets like India, Canada, and Mexico. Williams-Sonoma anticipates fiscal 2024 net revenues to decline in the 1.5-4% range; comps in the range of -3% to -5.5%; the operating margin between 18% and 18.4% (including the impact of the first-quarter out-of-period adjustment of 60 basis points).WSM, a multi-channel specialty retailer of premium quality home products, has an impressive track record of surpassing earnings expectations, exceeding the consensus mark in each of the last four quarters. The average surprise over this period is 17.4%, as shown in the chart below.Image Source: Zacks Investment ResearchHow Are Estimates Placed for WSM?The Zacks Consensus Estimate for the third-quarter EPS has declined over the past 60 days, as shown in the chart below. The estimated figure indicates a 3.8% decline from the year-ago reported figure. The consensus mark for revenues is $1.78 billion, indicating a 4.2% year-over-year decline.Image Source: Zacks Investment ResearchWhat the Zacks Model Unveils for Williams-SonomaOur proven model predicts an earnings beat for WSM this time around. The company possesses the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat.Earnings ESP: WSM has an Earnings ESP of +0.29%. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.Zacks Rank: The company currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.Factors Influencing Williams-Sonoma’s Q3 PerformanceSoftening category demand due to macro and geopolitical concerns has been weighing on consumers’ capacity to spend on discretionary products. The broader demand for furniture and home furnishings has been weak, with Census Bureau data showing only a slight improvement in retail sales trends in this category.Challenges like subdued consumer interest in home furnishings, adverse weather impacts and economic uncertainty, given the U.S. elections. Housing market stagnation, exacerbated by high mortgage rates of around 7%, is expected to have weighed on consumer spending. Additionally, potential tariff increases on Chinese imports pose a risk.Nonetheless, WSM’s solid operating model, comprising full-price selling, supply-chain efficiencies and top-tier customer service, is expected to have partly offset headwinds in its fiscal third-quarter results. The multi-channel, multi-brand platform, strong e-commerce growth, solid execution of strategic initiatives, digital leadership, product innovation, retail transformation and operational excellence across businesses are expected to have somewhat contributed to Williams-Sonoma’s net sales in the third quarter of fiscal 2024. Also, cross-brand initiatives are expected to have positively contributed to consolidated comps to some extent.Overall, our model predicts comparable sales to contract by 4.6% in the fiscal third quarter. This decline is an improvement from the 14.6% decrease recorded in the prior year, depicting some stabilization in consumer demand.From the company’s overall margin perspective, while WSM is navigating a tough retail environment, its strategic emphasis on product value, margin management, and selective advertising is expected to have mitigated some risks in the quarter.Our model projects the company's gross margin to show a 60-basis-point expansion to 45% from a year ago, driven by supply chain efficiencies that offset increased marketing expenses.Other EstimatesKey business segments are experiencing varied performances. We expect Pottery Barn Kids and Teen’s comps to be down 1%. The same had declined 6.9% a year ago. In the second quarter of fiscal 2024, comps were positive 1.5%.Our model predicts Pottery Barn’s comps to decline 6.5% year over year. The same declined 16.6% a year ago. In the second quarter of fiscal 2024, comps were negative 7.1%.Our model predicts West Elm’s comps to decline 6.5% year over year. The metric witnessed a 22.4% decline a year ago and a 4.8% decline in the last reported quarter.We expect the namesake brand’s comps to be down 1% year over year. The metric witnessed a 1.9% decline a year ago and a decline of 0.8% in the previously reported quarter.Williams-Sonoma’s Stock Price Performance & ValuationWSM stock has exhibited an upward movement in the year-to-date (YTD) period.  The stock has gained 32% compared with the  Zacks Retail - Home Furnishings industry’s rise of 7.8% in the same time frame.The company has also broadly outperformed its peer companies like RH (RH, up 9.4% YTD), Haverty Furniture Companies, Inc. (HVT, down 34.6%) and Ethan Allen Interiors Inc. (ETD, down 9.5%).WSM’s YTD Price PerformanceImage Source: Zacks Investment ResearchLet's assess the value WSM offers to investors at its current levels.Presently, WSM is trading at a premium compared to the industry average, as shown in the chart below.Image Source: Zacks Investment Research Again, WSM’s trailing 12-month return on equity is better than its industry average, as shown below.Image Source: Zacks Investment ResearchInvestment Thoughts: Buy, Sell or Hold WSM Stock?Williams-Sonoma's fiscal third quarter is expected to have reflected a cautious approach amid an uncertain economic environment. However, the company’s strong profitability, driven by operational efficiencies and disciplined pricing strategies, positions it well to weather challenges.Williams-Sonoma has established itself as a prominent e-commerce retailer in the United States, with approximately 66% of its sales derived from online platforms. This figure is anticipated to increase to 70% over time. The company is making significant investments in its digital strategy, dedicating $225 million in 2024 to improve e-commerce and supply chain efficiency.Additionally, the company's B2B segment is performing well, particularly in sectors such as hospitality, sports, and entertainment, which are less dependent on housing market trends.However, risks such as low consumer confidence, housing market fluctuations, and economic uncertainty could impact the company. Given these factors, including the company's high valuation, recent downward estimate revisions, and macroeconomic risks related to the high-interest rate environment, cautious investors can wait for more stability in Williams-Sonoma's performance and market conditions before considering an investment in this stock.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Williams-Sonoma, Inc. (WSM): Free Stock Analysis Report RH (RH): Free Stock Analysis Report Haverty Furniture Companies, Inc. (HVT): Free Stock Analysis Report Ethan Allen Interiors Inc. (ETD): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks