Williams-Sonoma is a home furnishings retailer that markets and sells products through around 590 brick and-mortar retail locations, the segment’s largest e-commerce business, and catalog distribution. WSM’s core concepts include Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, and West Elm.
WSM faces notable gross margin headwinds in H2 as we believe more aggressive promotions will continue to drive sales,
particularly in the retail segment. We estimate the gross margin will decline 53bps yr./yr. to 38.9%, which would be the
company’s weakest margin since FY09. WSM is also contending with investments above its initial expectation as its ramps up its global infrastructure to support new company-operated stores and e-commerce sites in Australia and the U.K. We think this translates to a 20bps EBIT margin contraction in FY13.
We are downgrading shares from Buy to HOLD. The near-term pressure is fairly reflected at the stock’s current multiples of 18x our FY14 EPS estimate and 8x FY14E EV/EBITDA, in our view.
The Williams-Sonoma concept continues to struggle to sustain sales momentum. The namesake brand has suffered
comparable brand revenue declines in five of the last seven quarters.
Our FY13 EPS estimate of $2.77 is $0.04 below consensus. For FY14, we estimate EPS of $3.17, versus consensus of
Shares have run full steam. WSM has appreciated 37% over the TTM period, versus the S&P 500 index +17% and the RLX
- Williams-Sonoma’s Next Big Thing (thestreet.com)