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What's in Store for Williams-Sonoma (WSM) in Q3 Earnings?

Williams-Sonoma, Inc. WSM is slated to report third-quarter fiscal 2017 results on Nov 16, after market close. Last quarter, the company delivered a positive earnings surprise of 3.39%. In fact, it surpassed the earnings estimate in each of the trailing four quarters, the average beat being 3.89%.

The chart below depicts the surprise history.

Williams-Sonoma, Inc. Price and EPS Surprise

 

Williams-Sonoma, Inc. Price and EPS Surprise | Williams-Sonoma, Inc. Quote

Factors at Play

Williams-Sonoma, a multi-channel specialty retailer of premium quality home products, owns some of the most popular brands, namely Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen Rejuvenation and Mark and Graham.  Williams-Sonoma has been reporting soft comparable brand revenues for some time now. Nonetheless, the company is focused on enhancing customer experience through improved and innovative marketing techniques. In order to enhance customer experience, the company is using web tools that utilize augmented reality, creating videos on social media sites and making digital advertisements. This will help the company generate higher sales in the to-be-reported quarter.

Pottery Barn, the company’s largest brand, has struggled in fiscal 2016 and early in 2017. However, second quarter of fiscal 2017 represented a sequential improvement from negative 1.4% to positive 1.2%. The company has been working hard on the repositioning of the brand and has developed initiatives to implement across all areas of the business from product to value to marketing. The Zacks Consensus Estimate for Pottery Barn comps growth of 1.25% reflect the success of the company’s strategies.

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 high single-digit range and are expected to witness 8.5% growth in the to-be-reported quarter, per the Zacks Consensus Estimate. On the other hand, consensus estimate for the company’s namesake brand’s comps growth of 2% indicates an increase from the prior quarter’s 1.9% growth. PBteen is likely to see 0.5% comps growth in the third quarter compared with 0.2% in the preceding quarter.

However, Pottery Barn Kids’ comparable brand revenues are likely to decrease 0.5% in the third quarter, compared with down 3.9% in the prior quarter.

Overall, the company expects third-quarter net revenues in the range of $1.270-$1.310 billion compared with $1.245 billion reported in the prior-year quarter. Comparable brand revenues are likely to grow in the 2% to 5% range (higher than negative 0.4% seen in the prior-year quarter).

Analysts polled by Zacks expect revenues of $1.29 billion for the said quarter, reflecting a 3.8% increase from a year ago.

However, the company’s margins are under pressure owing to increased competition and lack of robust comps growth. That said, the company will continue to strengthen its competitive advantages through innovation in e-commerce in the upcoming quarters.

The company expects earnings per share between 80-87 cents in the third quarter of fiscal 2017 (compared with 79 cents reported in the prior year quarter).

Overall, for the fiscal third quarter, the Zacks Consensus Estimate for earnings is pegged at 84 cents per share, reflecting an increase of 6% year over year.

Here is what our quantitative model predicts:

Williams-Sonoma does not have 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 -0.92%.

Zacks Rank: Williams-Sonoma carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.

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

Stock Worth a Look

Here is a stock in the Retail-Wholesale sector that has the right combination of elements to beat on earnings this quarter.

Urban Outfitters, Inc. URBN has an Earnings ESP of +0.12% and a Zacks Rank #3. The company is set to report quarterly results on Nov 20.

American Eagle Outfitters, Inc. AEO has an Earnings ESP of +1.30% and a Zacks Rank #2. The company is expected to report quarterly results on Nov 29.

Dollar General Corporation DG has an Earnings ESP of +3.79% and a Zacks Rank #2. The company is slated to report quarterly results on Dec 7.

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American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report
 
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Williams-Sonoma, Inc. (WSM): Free Stock Analysis Report
 
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