Williams-Sonoma, Inc. (WSM) — Well Done But Over-Cooked

What will it take to make the high end of $2.52?

Looking back at last year, Q4 earnings in 2011 were $1.17.  Q4 2012 EPS will have to be $1.30 to meet the high-end $2.52 guidance. That’s an 11% increase over last year to make $2.52 in 2012. On Jan. 16 2013,  WSM announced a 4.8% increase in sales and reiterated Q4 and 2012 earnings. Since guidance was confirmed after the holidays, it seems safe to assume they made the numbers they reported for Christmas — Q4 EPS will range between $1.21 to $1.28 for Q4 2012, up from the $1.17 in Q4 2011. If that holds, they will miss the high end of guidance by 2¢, and that will prevent a run up in the share price.

Total revenue is expected to be in the range $1,360 to $1,400 million, up 2% – 4% year-over-year.  Same store sales will be between 2% to 4%, lower than the 6.6% growth in Q4 2011.

The market reaction and 10% drop in share price may either be a disappointment that guidance was not raised again or skepticism that Q4 would see a surprise 11% increase in EPS meeting $2.52. With the market it’s impossible to say for sure.

With the price at nearly historic highs and guidance confirmed, without an upward earnings surprise for fiscal year 2012 there is unlikely to be a lot of upside to the price per share in the near term. The big gains were seen in August and the market presently looks unlikely to give WSM a lot more since it did not gain when guidance was reiterated. Over the long term, WSM will grow revenue near comps for retail if the store base numbers are static or decline. Comps are likely to range between 3% to 6%–not an exciting growth story. The real growth may be in direct to consumer -— especially e-commerce, now 47.3% of revenue with growth of 17%.

What would make WSM the perfect stock to buy?

1). Close stores in concepts that are not growing—-Williams-Sonoma

2). Increase the winners—-West Elm and Pottery Barn

3). Push e-commerce even harder

4). Lower price per share—as always

The article Williams-Sonoma — Well Done But Over-Cooked originally appeared on Fool.com and is written by j.a. graham.

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