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Is a Beat in Store for Williams-Sonoma (WSM) in Q4 Earnings?

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Williams-Sonoma, Inc. (WSM - Free Report) is slated to report fourth-quarter fiscal 2017 results on Mar 14, after the market closes.

Last quarter, the company’s earnings were in line with the Zacks Consensus Estimate. Williams-Sonoma surpassed earnings estimates in three of the trailing four quarters, the average beat being 3.24%.

Let’s see us discuss some of the key factors that might influence the company’s fourth-quarter fiscal 2017 results.

Marketing Initiatives Boosts Demand

Williams-Sonoma’s focus on enhancing customer experience through improved and innovative marketing techniques is 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 the company generate higher sales in the to-be-reported quarter.

For the fourth quarter of 2017, the company expects net revenues in the band of $1.61-$1.68 billion, reflecting an improvement from $1.16 billion reported in the prior-year quarter. The Zacks Consensus Estimate for revenues is pegged at $1.65 billion, showing an increase of 4.3% year over year. Notably, less furniture sale occurs in the fourth quarter for the holiday season.

Brand Performance

Coming to the different brands, Pottery Barn — the company’s largest brand — is expected to witness comps growth of 0.75% in the to-be-reported quarter, per the consensus estimate. Pottery Barn Kids’ comparable revenues are likely to increase 2% in the fourth quarter, compared with an increase of 0.1% in the prior quarter. PBteen is likely to see 3% comps growth in the fourth quarter, in line with the preceding quarter’s level.

Per the consensus estimate, the company’s West Elm brand has also been witnessing significant growth, banking on addition of new stores and comps growth. Comps are currently growing in the double-digit range and are expected to witness 10.5% growth in the to-be-reported quarter, per the consensus estimate. The company’s namesake brand is expected to witness comps growth of 2.5%, up from 2.3% reported in the prior quarter.

E-commerce Growth Strong

Importantly, sales from e-commerce channel are an important source of revenues. The segment reported net revenues of $690 million in the quarter, up 6.4% year over year. The upside was driven by West Elm brand, Williams-Sonoma brand, the company’s newer businesses Rejuvenation and Mark and Graham along with its international operations. The trend is expected to continue in the to-be-reported quarter with revenues pegged at $865 million, per the consensus estimate.

Margins under Pressure

However, the company’s margins are reeling under pressure, thanks to increased competition and lack of robust comps growth. Gross margin was down 90 basis points (bps) from the year-ago figure and operating margin was down 40 bps in the third quarter. Fourth-quarter operating margins are expected to be less than the prior-year quarter’s level.

Overall, the company expects earnings per share in the range of $1.49-$1.64 in the fourth quarter of fiscal 2017, compared with $1.55 in the prior-year quarter. The Zacks Consensus Estimate for earnings is pegged at $1.63 per share, reflecting an increase of 5.2% year over year.

Quantitative Model Prediction

Williams-Sonoma has 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.

Zacks ESP: Williams-Sonoma has an Earnings ESP of +4.95%.

Zacks Rank: Williams-Sonoma carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Williams-Sonoma, Inc. Price and EPS Surprise

Stocks Worth a Look

Here are a few stocks in the Retail-Wholesale sector with the right combination of elements to beat on earnings.

RH (RH - Free Report) has an Earnings ESP of +1.77% and a Zacks Rank #2.

Urban Outfitters, Inc. (URBN - Free Report) has an Earnings ESP of +6.76% and a Zacks Rank #3.

Dollar General Corporation (DG - Free Report) has an Earnings ESP of +1.69% and a Zacks Rank #2.

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