Williams-Sonoma Hits 52-Week Low on Bleak Margin Outlook
Shares of Williams-Sonoma Inc. WSM plummeted to a new 52-week low of $58.44 on Dec 14.
Shares have been plunging ever since the company provided a weak fourth-quarter outlook during the third-quarter 2015 earnings conference call on Nov 19. Despite reporting an impressive sales figure and earnings surprises in the third quarter, the company witnessed weak margins resulting from the West Coast port disruptions. The weak fourth-quarter 2015 outlook reflects expectations of these headwinds to linger in the quarter as well.
Shares of the home furnishing company eventually closed at $59.05 on Monday. Shares have declined about 20% so far this year.
What’s Dragging it Down?
Williams-Sonoma reported soft margins in the third quarter of 2015 due to the West Coast port disruptions. The company incurred higher costs to mitigate port disruptions while fulfilling customer demand.
Since fourth-quarter 2014, earnings and revenues were being hurt by disruptions in the West Coast ports. These disruptions delayed the availability of inventory for sales in the first half of 2015. By third-quarter 2015, the company was able to recover its inventory levels to meet the ongoing holiday season. It, however, continues to incur higher shipping and fulfillment related costs, which hurt margins in the third quarter of 2015.
Moreover, the company expects these disruptions to hurt margins in the fourth quarter as well. It estimates lost sales of $30–$40 million from these disruptions, which would lower earnings per share by 10–12 cents in fiscal 2015.
Williams-Sonoma guided fourth-quarter 2015 earnings per share in the range of $1.53 to $1.62. which fell short of market expectations.
Further, comps were relatively softer in the third quarter, with PB teens reporting a massive decline in particular. However, Williams-Sonoma’s e-commerce business is gaining traction. Successful launch of new products and new stores is also contributing to its revenues.
Williams-Sonoma carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the consumer discretionary sector include Tempur Sealy International Inc. TPX, Masonite International Corporation DOOR and Restoration Hardware Holdings, Inc. RH. While Masonite International Corporation sports a Zacks Rank #1 (Strong Buy), Tempur Sealy International and Restoration Hardware carry a Zacks Rank #2 (Buy).
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