WSM, looks like an overreaction to me
<<Williams-Sonoma Sees 4th-Qtr Profit Below Forecasts (Update6)
(Adds year-ago fourth-quarter results in sixth paragraph.)
San Francisco, March 6 (Bloomberg) -- Williams-Sonoma Inc.
said fiscal fourth-quarter profit will miss analysts' estimates
because of higher Internet and inventory costs, sending shares of
the housewares retailer down 39 percent.
The operator of the Williams-Sonoma, Pottery Barn and Hold
Everything chains tumbled 11 15/16 to 18 15/16 on the New York
Stock Exchange, its lowest level since October 1998. The stock
decline wiped out about $674 million in market value.
The company said it spent more than expected in the fourth
quarter to build up inventory, customer service and a reserve to
cover the cost of returned merchandise at its catalog and fast-
growing Internet business. Some analysts said they were surprised
by the increased spending, prompting them to cut profit forecasts
for this year.
``They have to do a better job of executing and controlling
costs,' said Cary Schwartz, president of Blackhill Capital Inc.,
which owns 1.4 million shares.
Earnings for the quarter ended Jan. 30 will be 81 cents to 82
cents a share, the San Francisco-based company said. The revised
earnings included a 5-cent to 6-cent charge for the reserve, said
analyst Shelly Hale of Banc of America Securities.
The average estimate of analysts polled by First Call/Thomson
Financial was 94 cents a share. In the year-ago quarter, Williams-
Sonoma earned $43.9 million, or 75 cents.
``It's a disappointment clearly and has been poorly
communicated to (Wall) Street,' said Hale, who maintained her
``buy' rating on the shares.
Hale lowered her earnings estimate for this year to $1.45 a
share from $1.51 because of the increased Internet spending.
Robinson-Humphrey & Co. analyst David Magee also cut his profit
estimate for the year by 10 cents to $1.45 a share.
Company officials couldn't be reached for comment.
Sales
Fourth-quarter sales rose 22 percent to $537.2 million. That
was below Magee's forecast of $551 million.
``They didn't have as many `giftable selections' in their
stores, particularly at Pottery Barn,' said Magee.
Sales at stores open at least a year rose 4.4 percent.
Catalog sales, which include Internet sales, rose 30 percent to
$188.7 million.
Williams-Sonoma unveiled its first store on the Internet in
November to supplement sales at its stores, catalogs and online
wedding registry.
The site, www.williams-sonoma.com, sells more than 2,000 of
the company's most-popular products, and has features including
recipes and gift ideas. The company also has agreements to link
with two other Internet sites: Epicurious, which provides
information on cooking, and Della & James, a gift registry.
During the holiday season, the company spent heavily on
improving customer service, expanding distribution systems and
stocking up on merchandise to make sure its Internet and catalog
shoppers had smooth service.
Williams-Sonoma operates 344 stores and also has an online
wedding registry called Wswedding.com. The company is scheduled to
report earnings results March 15.
February Sales
Last month, Williams-Sonoma's sales at stores open at least a
year rose more than 9 percent. Sales at its Internet and catalog
business rose 50 percent compared to a year earlier.
``The February numbers sound good, which would indicate
continued brand strength,' said analyst Joan Bogucki of Wedbush
Morgan Securities, who rates the stock a ``buy.'
Analysts expect Williams-Sonoma's profit to increase by an
average of 25 percent during the next five years, according to
Bloomberg analytics. That's in line with profit forecasts for Bed
Bath & Beyond Inc., the No. 1 U.S. operator of home-furnishings
superstores, and Linens 'n Things Inc.
Even so, shares of home-furnishings retailers have fallen in
the past three months on concern about slowing sales growth.
Williams-Sonoma's shares fell 48 percent from a closing high of 59
3/16 on Dec. 7 to Friday's close.
Williams-Sonoma's stock trades at about 14 times estimated
earnings, in line with Linens 'n Things and about half that of Bed
Bath & Beyond, which trades at 28 times estimated profit.
Credibility
Analysts and investors said the credibility of Williams-
Sonoma's management has been hurt the past few years by several
surprise announcements.
In January 1996, the shares lost almost a quarter of their
value after Williams-Sonoma warned that fourth-quarter earnings
would miss expectations because of higher costs.
More recently, Williams-Sonoma's stock fell 20 percent on
Jan. 6 after the company released holiday 1999 sales figures that
were less than some analysts had forecast.
``Credibility has certainly been injured and they're going to
have to reestablish and earn the investor's trust,' said
Blackhill's Schwartz.
Still, Schwartz expects Williams-Sonoma shares to rebound.
``The patient is suffering, but it's something that can be
addressed,' he said.>>
quote.bloomberg.com |
