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Morgan Stanley Turns Bearish On Williams-Sonoma, Expects Pressures To Intensity

Jayson Derrick

Specialty retailer Williams-Sonoma, Inc. (NYSE: WSM) faces multiple headwinds in 2019, which is likely to lead an acceleration in margin deterioration along with greater top-and-bottom line pressure, according to Morgan Stanley.

The Analyst

Morgan Stanley's Simeon Gutman downgraded Williams-Sonoma from Equal-weight to Underweight with a price target lowered from $55 to $49.

The Thesis

Among the multiple brands under the company's portfolio, the core Williams-Sonoma brand and West Elm continue to perform well, Gutman said in the note. But the Pottery Barn brand, which accounts for around 55 percent of total revenue, has bounced between negative and positive comps over the past three years and Morgan Stanley's proprietary survey now points to a poor outlook.

The firm's November 2018 "AlphaWise Home Furnishing" survey found a decrease in customer visits to Pottery Barn along with a drop in intent to purchase at Pottery Barn as well as Williams Sonoma and west elm. As such, the Pottery Brand is likely to post "anemic" results in 2019, which will make it difficult for the company to leverage expenses.

Williams-Sonoma also faces macro headwinds as it could be more negatively impacted to potential tariffs than other retailers. In addition, the research firm's survey also found the company is among the worst positioned to navigate through a potential recession.

Price Action

Shares of Williams-Sonoma were trading lower by 1.7 percent at $51.59 Wednesday afternoon.

Related Links:

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How The 'Fading' Pottery Barn Brand Impacts Williams-Sonoma

Latest Ratings for WSM

Date Firm Action From To
Jan 2019 Morgan Stanley Downgrades Equal-Weight Underweight
Nov 2018 Morgan Stanley Maintains Equal-Weight Equal-Weight
Nov 2018 Citigroup Maintains Neutral Neutral

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