Williams-Sonoma (NYSE: WSM) has always fashioned the latest trends for consumers with its upscale home furnishings and cooking tools. Lately, though, the company has set a trend of diminishing investor value, with the stock dropping by more than 10% in today's trading lows, and more than 50% from its 52-week high.
Williams-Sonoma's namesake and Pottery Barn stores continue to take the brunt of a declining housing market and overall economic decline, with the company providing guidance that suggests the rest of the year won't be much better.
Last quarter's dismal earnings featured decreasing cash and the sale of a corporate jet. Yep, that trend continued, with balance sheet cash dropping by more than 34% from last year, which is thankfully enough to cover long-term debt. Overall revenue declined by 4.6%, with a 30% drop in the bottom line.
Same-store sales decreases worsened dramatically over the period, from 8.6% in May to 14% in July. Pottery Barn's quarterly same-store sales decline of 16% contributed the bulk of this, along with Williams-Sonoma's quarterly decline of 4.5%, versus an increase of 1.1% for the second quarter of last year. The yearly guidance doesn't indicate any improvement in the near term, as same-stores sales are projected to fall as much as 12.5%.
Like many companies these days, online sales provided a bright spot for Williams-Sonoma, increasing by 11.7%. However, overall direct-to-consumer revenue dropped by 4.3%, meaning that increasing Internet sales aren't making up for the losses in catalog sales. With bricks-and-mortar sales steeply falling, you've got to wonder why the company is opening 54 stores this year, instead of focusing efforts on growing Internet sales.
That said, Williams-Sonoma is doing a decent job of managing cost of goods sold and selling, general, and administrative expenses (SG&A) through the revenue downturn. Even with the significant revenue decline, net earnings decreased only 80 basis points, to 1.8% of sales. However, given the slim margins the company faces, there's little room for any margin slimming.
Listen, it's tough out there right now. Sears Holdings (Nasdaq: SHLD) reported additional earnings declines today, while Bed Bath & Beyond (Nasdaq: BBBY) has delivered slightly positive sales growth countered with slowing earnings. The housing market doesn't look to improve anytime soon and recessionary fears are feeding into a trend that even the most optimistic investors can't ignore. Consumer-based companies won't be turning around anytime soon, but at 11.4 times next year's earnings, Williams Sonoma could be cheaply priced if it perks up when the economy finally straightens out.
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