Can Home Goods Stores Recover This Summer?

The home goods sector features retailers like Williams-Sonoma (NYSE: WSM  ) , Bed Bath & Beyond (NASDAQ: BBBY  ) , and Pier 1 Imports (NYSE: PIR  ) . Williams-Sonoma boasts its original line of home furnishings while its competitors are focused on arrays of goods and products for the home. The recent earnings reports of these companies were a mixed bag with Williams-Sonoma performing well while the others stumbled in part because of heavy winter weather. Let's take a look at the results of these companies to discern if any of them represents a potential investment opportunity. 

Williams-Sonoma is poised to lead the home goods sector
Williams-Sonoma seems to have coped with the winter doldrums far better than its rivals. The retailer recently reported solid results which showed that sales during the quarter ended on May 4, 2014 climbed 9.7% to $974 million. At the same time, margins were up slightly -- gross profit margin came in at 37.8% of sales, compared to 37.6% in the same year-ago period.

However, earnings are the angle to focus on: Earnings per share came in at $0.48 during the quarter, up 20% from the same quarter in the prior year. Most importantly, investors should note that the company distributed $86 million in cash to shareholders in the forms of $53 million in share buybacks and $33 million in dividends.

Going forward, Williams-Sonoma has raised its guidance. In fiscal 2014, the company anticipates that sales will range from $4.65 billion-$4.73 billion, above prior guidance of $4.63 billion-$4.71 billion. Furthermore, it expects comps to climb between 5% and 7%. Finally, full-year earnings per share are poised to come in higher than the previously expected range of $3.05-$3.15 at $3.07-$3.17.

In short, Williams-Sonoma is strong in many ways. The home furnishings leader offers its customers high-quality products and has demonstrated strong marketing abilities. Also, the company's online presence and strong e-commerce platform enable it to sell consistently over time, regardless of heavy weather.

This gives Williams-Sonoma an edge over its home goods rivals. The firm's president and CEO, Laura Alber, remains confident in Williams-Sonoma's sustained solid performance.

"We believe our multi-brand, multi-channel platform is driving consistent market share gains and providing us with a sustainable competitive advantage," said Alber.

Investors take Bed Bath & Beyond to the woodshed

Investors have been punishing shares of Bed Bath & Beyond this year. The company's share price has fallen more than 20%. That decline was accelerated by the company's recent fourth-quarter and fiscal 2014 earnings report.

Put simply, Bed Bath & Beyond's financial performance for the quarter ended on March 1 was poor enough to give many investors the shivers. The company's net sales slipped 5.8% to $3.2 billion. For the year-ago period, Bed Bath's net sales were $3.4 billion.

The company's earnings also suffered from what may have been seasonal influenza which broke out across the broader retail sector. The company's earnings per share came in at $1.60, which was $0.08 lower than its EPS for the same period in 2013.

While Bed Bath & Beyond attributed the sales slump to the prolonged harsh winter weather, the company's earnings guidance for this quarter was far from heartwarming. The company anticipates earnings in a range from $0.92-$0.96 per share.

Some might argue that Bed Bath & Beyond is good for investors who are shopping for bargains because its forward price earnings ratio of 12 is slightly below its current P/E of 13; however, that may not be enough to draw a bath, so to speak.

Pier 1 is still fighting back from a dismal 2013 performance
Pier 1 Imports had a rough year in 2013. However, the company seems to have regained its footing in fiscal 2014.

Pier 1's recent financial report saw improving sales of 3.9% while comps were up by 2.4%. Like Williams-Sonoma, Pier 1 also recognizes the need to build a better sales platform on the Internet. The company is making solid strides here as e-commerce sales comprised 4% of its total sales.

The company also rewarded its shareholders with $203.9 million in stock repurchases while distributing $21.7 million in quarterly cash dividends. However, the question remains as to whether earnings per share of $1.01 is alluring enough for investors.

Company president and CEO Alex W. Smith believes Pier 1 had a "transformational year." In particular, the company has built a stronger e-commerce platform and the business continues to strive to improve its brand across the board.

Looking ahead, Pier 1 anticipates comps in the "mid single digit range" in fiscal 2015 and earnings growth in the range of 11%-17%. Pier 1 also is boldly calling for year-over-year earnings growth of 15%-23%. The company's continued advances into e-commerce will tell the tale as it shoots for Internet sales of at least 10% of total sales by the end of fiscal 2016.

"With the spring season officially under way, we are enthusiastic about the strong customer response to our merchandise – including our latest seasonal offerings – and believe the business is well positioned to regain momentum," said Smith.

The Foolish bottom line
The jury is still out on the spring season across the home goods sector. So the question remains as to whether Bed Bath and Beyond and Pier 1 Imports will successfully steer their sales and earnings back on track. In my opinion, Williams-Sonoma's strong brand power, solid marketing plan execution, and well developed e-commerce platform make the company the best buy in the home goods sector.

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