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Williams-Sonoma Could See Lift From New Offerings

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Williams-Sonoma heads into the holiday season with a full serving of new offerings on its plate.

An exclusive line of cookware and kitchen tools hit the home goods retailer's namesake store shelves and website in time for the Black Friday holiday shopping frenzy.

Earlier this month,Williams-Sonoma ( WSM ) launched the Mark and Graham brand of personalized gifts and accessories s available via an exclusive direct mail catalog and an e-commerce website, markandgraham.com.

But will these new offerings, combined with the wide array of products it already sells through its 584 stores, seven direct mail catalogs and six e-commerce websites, be enough of a lure to give the company a fruitful holiday season and fourth quarter?

The jury is still out

"I feel good about their prospects," said SunTrust Robinson Humphrey analyst David Magee.

He says Williams-Sonoma heads into the holiday better positioned than last year due to exclusive offerings, such as the Williams-Sonoma branded cookware and its Agrarian back-to-nature collection of products launched in April.

A Sophisticated Feel

"They're also coming into the holiday with a more sophisticated feel about how to be promotional without giving away the store," he said.

Wedbush Securities analyst Joan Storms says Williams-Sonoma is "well-positioned" for the holiday season, but she is concerned about the impact "showrooming" will have on the nationally branded products sold at its Williams-Sonoma kitchenware stores.

Showrooming occurs when shoppers use their smartphones to price goods in stores, only to go online and buy the same or similar product for a cheaper price.

Storms says in 2011, the core Williams-Sonoma concept accounted for 27% of total company sales for the year, and roughly 50% of the Williams-Sonoma concept's sales occur in the fourth quarter.

She expects the company and the Williams-Sonoma concept to maintain their market share over the holiday, though she says it's going to depend on the promotional environment in the marketplace.

Still, she's "cautiously optimistic."

"I'm on the sidelines in terms of the stock right now, but I'm optimistic about the product assortment for its multiple brand portfolio, and I will continue to do channel checks throughout the holiday season," she said.

The company's namesake chain is its largest concept with 259 stores as of the end of the third quarter. Its other large concepts include the Pottery Barn home furnishings chain with 193 stores, Pottery Barn Kids with 83 stores and its West Elm home furnishings and decor chain with 45 stores. These concepts also sell products via direct-mail catalogs and e-commerce websites.

Storms sees potential in some of the company's recent initiatives.

She's "impressed" with the new Mark and Graham brand, which consists of products personalized with a choice of more than 50 custom monograms and creative type treatments.

Another recent initiative is the West Elm Market, which offers exclusive kitchen, garden, repair and personal care products in a general store-type setting. The first store opened in Brooklyn, N.Y., on Oct. 25. Storms expects the concept, which features products from local artisans, to do well in larger metro markets. But she doesn't see it having broad appeal like its West Elm home furnishings and decor chain.

As a part of its growth plan, Williams-Sonoma is eying global expansion. It has signed a lease to house four of its brands, Williams-Sonoma, Pottery Barn, Pottery Barn Kids, and West Elm in Sydney, Australia. The four stores, slated to open in early 2013, are the company's first retail locations outside of North America to be owned and operated by Williams-Sonoma.

Storms says Williams-Sonoma has "international appeal" and that Australia should be a good market for the company.

Meanwhile, the company has been faring well on the financial front with three straight quarters of double-digit profit growth. In the third quarter, earnings rose 20% to 49 cents a share. Revenue increased 9% to $944.5 million.

E-Commerce Revenue

Direct-to-customer sales, including e-commerce and catalogs, rose 14.7% to $447 million, with increases across all brands. E-commerce revenue rose 16.7% to $396 million. Overall, direct-to-customer accounted for 47% of total company sales, vs. 45% a year earlier.

Retail store sales were up 4.2% to $497 million, driven by Pottery Barn and West Elm and partially offset by a decrease at Williams-Sonoma.

But the company forecast weaker-than-expected fourth quarter guidance of $1.21 to $1.28 a share. That compares with $1.33 a share forecast by Thomson Reuters analysts.

The guidance, says the company, included the impact of spending to support its growth initiatives, the impact of acceleration of global expansion into Australia and the estimated impact from Superstorm Sandy.

Analysts polled by Thomson Reuters expect fourth quarter earnings to rise 11% to $1.30 a share. They see full-year earnings increasing 14% to $2.55 a share. They forecast an 11% gain in 2013.

An improvement in the housing market should help give Williams-Sonoma a lift next year, says Magee.

"The housing metrics have been slowly improving throughout 2012, and we think that will begin to manifest in better home decor demand in the early spring months of 2013," he said.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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