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Will Digital Focus Aid Williams-Sonoma's (WSM) Q2 Earnings?

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Williams-Sonoma, Inc. WSM is slated to report second-quarter fiscal 2018 results on Aug 22, after the market closes.

In the last reported quarter, the company’s earnings outpaced the Zacks Consensus Estimate by 17.54%. In fact, its earnings surpassed estimates in all the trailing four quarters, with the average being 6.00%.

Let’s discuss some of the key factors that might influence the company’s second-quarter fiscal 2018 results.

Digital Focus & Product Innovation to Boost Revenues

Williams-Sonoma’s revenue growth in the fiscal second quarter will likely be driven by solid contribution from both retail and e-commerce sales, and the adoption of a new accounting standard. The company expects its comparable brand sales, including comparable sales of its retail stores and e-commerce, in the range of 3-5% for the quarter.

Williams-Sonoma’s focus on enhancing customer experience through improved and innovative marketing techniques looks encouraging. The company is using web tools that utilize augmented reality, creating videos on social media sites and making digital advertisements. Such initiatives along with innovative products are likely to help it generate higher sales in the to-be-reported quarter.

Importantly, sales from e-commerce channel are an important source of revenues as it accounts for 52.2% of its total revenues. In the first quarter of fiscal 2018, customer traffic and revenue growth (11.2%) in e-commerce reached the highest levels since 2014. The upside was driven by brands such as West Elm and the Williams-Sonoma, the company’s newer Rejuvenation and Mark and Graham businesses, along with international operations. The trend is expected to continue in the to-be-reported quarter as well.

Brand Performance

Coming to the different brands, Pottery Barn — the company’s largest brand — is expected to register comps growth of 1% in the quarter to be reported, per the Zacks Consensus Estimate. Pottery Barn Kids’ comparable revenues are likely to grow 2.75% in the second quarter. PBteen is likely to record 4.25% comps growth in the quarter.

The West Elm brand has also been witnessing significant improvement, courtesy of the addition of new stores and comps growth. Comps are currently growing in double-digit pace and expected to record 8.5% growth in the to-be-reported quarter, per the Zacks Consensus Estimate. The company’s namesake brand is expected to witness comps growth of 4.25%.

For the fiscal second quarter, it expects net revenues in the band of $1.25-$1.275 billion, reflecting an improvement from $1.202 billion in the prior-year quarter. The Zacks Consensus Estimate for revenues is pegged at $1.26 billion, suggesting an increase of 4.8% year over year.

Margin Story

Overall occupancy leverage and supply chain efficiencies, along with the implementation of the new revenue recognition standard have been benefiting the company’s margins. These positives might have been offset by lower selling margins, resulting from its strategic decision to provide more value to customers through more competitive product pricing, as well as higher year-over-year shipping costs.

Overall, it expects earnings per share in the range of 65-70 cents in the second quarter of fiscal 2018 compared with 61 cents in the prior-year quarter. The Zacks Consensus Estimate for earnings is pegged at 69 cents per share, reflecting an increase of 13.1% year over year.

Williams-Sonoma, Inc. Price and EPS Surprise


Williams-Sonoma, Inc. Price and EPS Surprise | Williams-Sonoma, Inc. Quote

Quantitative Model Prediction

Williams-Sonoma does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — to increase the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Williams-Sonoma has an Earnings ESP of -0.37%.

Zacks Rank: The company carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.

Meanwhile, we caution investors against the stock going into the earnings announcement, as a negative Earnings ESP lowers the possibility of an earnings beat.

Stocks Worth a Look

Here are a few stocks in the Retail-Wholesale sector, which have the right combination of elements to beat estimates in their respective quarters to be reported.

RH RH has an Earnings ESP of +0.76% and a Zacks Rank #2.

Best Buy Co., Inc. BBY has an Earnings ESP of +1.46% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dollar General Corporation DG has an Earnings ESP of +0.90% and a Zacks Rank #3.

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