Stocks fell Thursday as the U.S. and China enacted a new round of tariffs on each other's goods. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) both closed with small losses.
Today's stock market
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Technology was the only sector in the green, with the Vanguard Information Technology ETF (NYSEMKT:VGT) rising 0.3%. The price of gold and other metals fell, and the VanEck Vectors Gold Miners ETF (NYSEMKT:GDX) dropped 3.2%.
Profit at Williams-Sonoma is booming
Shares of Williams-Sonoma soared 16.5% after the home-furnishings specialist reported strong second-quarter results, with sales coming in at the top of previous guidance and profit exceeding it by a wide margin. Revenue increased 6.1% to $1.275 billion and non-GAAP earnings per share came in at $0.77, compared to guidance from three months ago for EPS of $0.65 to $0.70.
Comparable-brand revenue grew 4.6%, with the strongest growth coming from West Elm, up 9.5% compared with 10.1% in Q2 2017, and 5.7% growth from Pottery Barn Kids and Teens, versus a decline of 2.7% in the period last year. Pottery Barn comps were up 2% and the Williams Sonoma brand had 1.6% growth. E-commerce net revenue increased 8.9% and now accounts for 53.9% of the total. Gross margin improved 1.2 percentage points from last year to 36.4%, although 70 basis points of the increase was due to an accounting change.
Williams-Sonoma was conservative in raising revenue guidance for the full year only 0.7% at the midpoint, but increased the EPS guidance by $0.11 to a range of $4.26 to $4.36, above the $4.25 analysts had been expecting. The company said that it will have less clearance inventory for running sales in the second half, tamping down sales but boosting selling margin. It is also having success in bringing down supply-chain costs, which is offsetting increased shipping costs.
Strength across Williams-Sonoma's brands and good execution had investors cheering today, bidding the retailer's stock up to its highest level in almost three years.
L Brands expects lower profits
Retailer L Brands reported second-quarter sales and earnings that beat expectations, but gave a downbeat outlook, and shares dropped 11.4%. Net sales at the parent company of Victoria's Secret and Bath & Body Works grew 8.3% to $2.98 billion and earnings per share dropped 25% to $0.36. Analysts had been expecting EPS of $0.34 on sales of $2.93 billion.
Results at L Brands continue to be pulled down by the struggling Victoria's Secret unit. Comparable sales for the company were up 3%, but declined 1% at Victoria's Secret. Bath & Body Works, which accounts 32% of total sales, grew comps at a 10% rate. The operating income results exposed even greater disparity between businesses, with a 38% decline for Victoria's Secret and an 8% increase for Bath & Body Works. Gross margin fell 1.8 percentage points to 35.5%, with the merchandise margin rate at Victoria's Secret down
significantly across all major merchandise categories as the company cleared inventory.
L Brands lowered guidance for full-year earnings to a range of $2.45 to $2.70, down from a forecast of $2.70-$3.00 provided three months ago. The company attributed the change to deceleration of sales of its PINK brand, which is a lifestyle brand for young adult women and is reported as part of Victoria's Secret. The company also announced the retirement of Denise Landman, CEO of PINK.
Success at Bath & Body Works and its international expansion are bright spots for L Brands, but until the company can stem the declines of its iconic lingerie business, its shareholders could see more days like today.