Williams-Sonoma Preview: What Wall Street's Saying

NEW YORK (TheStreet) -- Williams-Sonoma (WSM) reports fiscal-second quarter results after markets close on Wednesday and analysts are expecting good things to come from the home furnishing brand.

Analysts, as tallied by Thomson Reuters, expect Williams Sonoma to post second-quarter earnings of 53 cents a share, up 9% from the year-earlier period. Revenue is expected to rise 7% to $1.047 billion. Same store sales are expected to rise by 6.2%, according to Consensus Metrix, fueled by strong gains in its Pottery Barn and West Elm brands.

Besides its flagship Williams-Sonoma brand, which sells kitchen gadgets, cookware and gourmet foods, it is the parent company to the ever-popular Pottery Barn group of brands and West Elm, both of which cater to upper middle-class homeowners and home decorating enthusiasts. On top of that, the company has smaller extension brands such as Rejuvenation and Mark and Graham.

Williams-Sonoma is one of few retail brands that seems to be hitting on all cylinders when it comes to e-commerce. The company noted in its annual filing with the Securities and Exchange Commission that for fiscal 2013, e-commerce revenue rose 17.7% over the 12-month period compared to 4.6% for retail store revenue growth. The company said total revenue rose 8.5% to $4.39 billion last year.

Williams-Sonoma shares are up 28% this year compared to an 8% gain by the S&P 500. Here's what Wall Street analysts are saying ahead of earnings:

Michael Lasser, UBS (Neutral; $68 PT)

WSM carries the attributes that are highly valued in today's environment, including a well-developed Direct-to-Consumer business, sophisticated marketing expertise, highly respected product development capabilities, and an extensive supply chain. These features, along with its strong execution, have enabled the company to deliver several years of strong performance. As a result, the market has come to expect upside each quarter from WSM. This is why it has rewarded the company with a premium multiple. In order to sustain this valuation, we think it needs to sustain its respected track record.

Jessica Schoen Mace, Nomura Securities (Buy; $85 PT)

Several key areas to focus on in the earnings report including: inventory levels, selling margin trends versus last quarter, trends in the international business, and the impact of investments in the second quarter and how they position the company for growing in the back half of the year. We continue to see the potential for upside at the company due to superior execution in marketing, merchandising and its supply chain.

Matt Nemer, Wells Fargo Securities (Market Perform; $80 PT)

From May through July, we received 354 promotional emails across WSM's four major brands (Williams Sonoma, Pottery Barn, PB Kids, and West Elm), up 57% yr/yr from 226, compared to a 31% increase in FQ1 and a 25% increase in FQ4 2013. Despite the increase, we believe there is some potential upside to estimates, particularly in gross margin (driven by merchandise margin) as the company recently moved away from an agent-sourcing model and insourced product quality control, which generates meaningful net savings in cost of goods and helped drive merchandise margin up 20bps yr/yr in FQ1. We are estimating comps to increase 6.5% (above guidance of 4-6%, and the Street at 6.2%), gross margin to decline 20bps to 37.4% (in line with the Street), and EPS of $0.54 (ahead of the Street at $0.53 and guidance of $0.49-0.52). We appreciate the value of Williams-Sonoma's brands and the strength of its multichannel model, although valuation appears reasonable at 21x FY2015E earnings.

Matthew Fassler, Goldman Sachs (Neutral; $72)

We stand above consensus for WSM, as we expect it to beat its conservative 2Q guidance, and consensus, which itself is camped out toward the high end of the guide. WSM has established a steady pattern of beats and raises, through conservative guidance, strength in the category, strong merchandising, ongoing enhancement of online marketing, and, more recently, a gradual improvement in merchandising in the namesake WS division. At this point, we believe the company has earned investors' respect, reflected in a loftier multiple and high expectations, but in an environment characterized by poor visibility, a small beat should prove sufficient to keep the stock at current levels.

--Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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