Shares of Williams-Sonoma (NYSE: WSM) were pulling back today after the high-end home furnishings company missed top-line estimates and posted declining comparable sales in its second-quarter report.
As of 10:56 a.m. ET, the stock was down 8.5% on the news.
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Williams-Sonoma is still facing headwinds
Like most of its home furnishings peers, Williams-Sonoma has struggled in the current environment as the sluggish housing market has weighed on demand for furniture, home decor, and kitchen items.
As a result, comparable brand revenue in the quarter fell 3.3% and overall revenue was down 4% to $1.79 billion, which missed the consensus at $1.81 billion.
However, gross margin improved by 550 basis points to 46.2% due to an increase in merchandise margins and improving supply chain efficiencies. Selling, general, and administrative (SG&A) expenses also increased 390 basis points to 30% due to increased performance-based compensation and advertising spend.
As a result, operating margin increased 160 basis points to 16.2%, and earnings per share (EPS) rose 12% to $1.74, beating estimates at $1.60.
CEO Laura Alber noted the "improved top-line trend, market-share gains, and continued delivery on our commitment to profitability."
Can Williams-Sonoma bounce back?
Williams-Sonoma's guidance update was mixed as its revenue forecast called for a decline of 1.5% to 4% for the full year, indicating ongoing headwinds in the home furnishings space. However, the company raised its operating margin guidance to a range of 18% to 18.4%, which translates into holding EPS guidance steady. Analysts expect EPS to improve from $7.28 to $8.21 for the year.
There is some good news for investors, however. Interest rates should start to come down at the Fed's next meeting in September, supporting a recovery in the housing market, which should help Williams-Sonoma return to sales growth.
At the current price, the stock looks like a solid value at a forward P/E of 16.3. If the housing market bounces back, look for Williams-Sonoma stock to move higher.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Williams-Sonoma. The Motley Fool has a disclosure policy.
