Will E-commerce Drive Williams-Sonoma's (WSM) Q1 Earnings?

Williams-Sonoma, Inc. WSM is slated to report first-quarter fiscal 2018 results on May 23, after the market closes.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 3.07%. Earnings surpassed estimates in two of the trailing four quarters, the average beat being 3.2%.

Let’s discuss some of the key factors that might influence the company’s first-quarter fiscal 2018 results.

E-commerce Growth Strong

Importantly, sales from e-commerce channel are an important source of revenues. In 2017, the company saw a 5.5% growth in e-commerce channel. The upside was driven by the West Elm brand, the Williams-Sonoma brand, the company’s newer businesses Rejuvenation and Mark and Graham along with international operations. The trend is expected to continue in the to-be-reported quarter.

Brand Performance

Coming to the different brands, Pottery Barn — the company’s largest brand — is expected to witness comps growth of 1.8% in the quarter to be reported, per the consensus estimate. Pottery Barn Kids’ comparable revenues are likely to grow 1.5% in the first quarter, reflecting an improvement from a rise of 0.9% in the prior quarter. PBteen is likely to see 6% comps growth in the quarter, reflecting improvement from a rise of 2.6% reported in the preceding quarter.

The West Elm brand has also been witnessing significant growth, courtesy of the addition of new stores and comps growth. Comps are currently growing in the double-digit range and are expected to witness 10% growth in the to-be-reported quarter, per the Zacks Consensus Estimate. The company’s namesake brand is expected to witness comps growth of 1.5%, reflecting a decline from 4.3% growth in the prior quarter.

Williams-Sonoma’s focus on enhancing customer experience through improved and innovative marketing techniques looks encouraging. The company is using web tools that utilize augmented reality, creating videos on social media sites and making digital advertisements. Such initiatives along with innovative products are likely to help the company generate higher sales in the to-be-reported quarter.

For the first quarter of 2018, the company expects net revenues in the band of $1.13-$1.17 million, reflecting an improvement from $1.11 million in the prior-year quarter. The Zacks Consensus Estimate for revenues is pegged at $1.16 billion, showing an increase of 4.6% year over year.

High Costs to Hurt Margin

As Williams-Sonoma derives substantial revenues from efficient catalog circulation and digital marketing, it is affected by costs associated with continued investments in e-commerce. Further, supply chain investments are denting the company’s operating margins. In fact, in 2017, the company’s operating margin contracted 70 basis points (bps) year over year. High costs might mar first-quarter fiscal 2018 results to some extent.

Overall, the company expects earnings per share in the range of 55-60 cents in the first quarter of fiscal 2018, compared with 51 cents in the prior-year quarter. The Zacks Consensus Estimate for earnings is pegged at 57 cents per share, reflecting an increase of 11.8% year over year.

Quantitative Model Prediction

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 -2.37%.

Zacks Rank: The company carries a Zacks Rank #4 (Sell).

We caution investors against the stock going into the earnings announcement, as a negative Earnings ESP combined with a Zacks Rank #4 lowers the possibility of an earnings beat.

Williams-Sonoma, Inc. Price and EPS Surprise

 

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

Stocks Worth a Look

Here are a few stocks in the Retail-Wholesale sector with the right combination of elements to beat estimates.

RH RH has an Earnings ESP of +0.54% and a Zacks Rank #3.

Urban Outfitters, Inc URBN has an Earnings ESP of +2.52% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dollar General Corporation DG has an Earnings ESP of +2.45% and a Zacks Rank #2.

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