Retailers might be struggling, inflation might be running hot and burning a hole in the consumer’s pocket but going by Williams-Sonoma’s (WSM) latest quarterly update, the wealthy have yet to feel the pinch.
The luxury home furnishing retailer’s Q1 results beat expectations. Revenue increased by 8% from the same period last year to reach $1.89 billion, in turn coming in ahead of the Street’s $1.81 billion forecast. Non-GAAP EPS of $3.50 also came in well above the $2.90 consensus estimate.
The company also stuck to its fiscal 2022 guidance, saying it expects to meet the long-term financial goal of mid- to high-single digit annual revenue growth. This should see revenue climbing to $10 billion by fiscal 2024. And in contrast to the forecasts of several other retailers this earnings season, Williams-Sonoma also expects operating margins to stay more or less the same as in 2021.
Assessing the print, Wells Fargo’s Zachary Fadem says that following another robust display, the bear case goes “back on the shelf, for now.” “Q1 strength appears robust enough to underwrite positive comps & low/mid-teens EBIT margins for at least 1-2 more quarters,” the 5-star analyst went on to say.
However, with the macro narrative looking bleaker by the day, Fadem warns that eventually the “post-EPS rally will fade.” Countering management’s reassurances on operating margins, Fadem expects supply chain issues to further pressure margins, noting that quarter-to-date, trends have “softened.”
Furthermore, the analyst does not expect the higher-end home categories to be immune from the macro developments much longer, believing they will “soon face the wrath of a reversing wealth effect and wallet share shift back to experiences.”
While the analyst concedes WSM is obviously making all the right moves, the “looming macro headwinds” keep him on the sidelines for now. It’s an Equal Weight (Hold), then, from Fadem who also lowers the price target from $140 to $135. (To watch Fadem’s track record, click here)
Looking at the ratings breakdown, based on 5 Buys and Holds each, plus 6 Sells, the consensus view is that this stock is a Hold. That said, even most of the bears appear to think the shares are undervalued; going by the $155.94 average target, the stock will add ~20% of muscle over the coming year. (See WSM stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
