Williams-Sonoma (WSM) Earnings, Nice EPS Beat But Margin Pressure Bigger Issue, Piper Jaffray Says; PT to $72

Williams-Sonoma (NYSE: WSM) EPS of $0.77 bested expectations for FQ3 yet full-year guidance remained essentially unchanged, thus implying a lower FQ4 guidance range relative to the consensus estimates. Gross margins were under pressure and much of the call surrounded that conversation but management indicated their pure merchandise margins are only down slightly and flat year-to-date-- not a result of excessive promotional activity.

FQ3, comparable brand revenue growth was up 4.5%, driven by a 15.7% gain at West Elm, 4.7% at Pottery Barn Kids, 2.0% at Pottery Barn, and a return to positive comps at core Williams-Sonoma at +1.2%; PBteen posted a 0.9% decline.

Gross margin is the story for the quarter as it declined 110 bps y/y to 36.6%. The decline was driven by higher shipping and fulfillment costs as well as the negative impact to margins when franchise revenues are higher (and therefore selling margins lower). Management indicated merchandise margins were down only slightly to LY and are flat YTD.

This wasn't enough for Piper Jaffray analyst, Neely J.N. Tamminga who remains on the sidelines with a Neutral rating today. However, the analyst thinks WSM could be an interesting stock to potentially revisit on the other side of holiday should the consumer snapback their overall weather induced traffic lull and show up to spend this holiday season.

The firm maintained a Neutral rating and lowered their price target to $72.00 (from $87.00).

For an analyst ratings summary and ratings history on Williams-Sonoma click here. For more ratings news on Williams-Sonoma click here.

Shares of Williams-Sonoma closed at $66.21 yesterday.

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