Williams-Sonoma, Inc. (WSM)’s Stock Plummets After Weak Guidance For The Coming Quarter

Williams-Sonoma, Inc. (NYSE:WSM), the California-headquarter specialty home furnishings retailer, had yesterday released its earnings report for the second quarter, ended on August 3. Sales revenue amounted to $1.04 billion, which was 5.8% higher compared to the same period of last year and only slightly smaller than market estimate of $1.05 billion. Meeting revenue targets notwithstanding a lower than expected guidance for the third quarter caused the company’s shares to take a plunge, which fell by more than 11.2%. For the third quarter, the company expects revenue between $1.1 billion to $1.13 billion and diluted EPS from $0.58 to $0.63. David Magee, Analyst at SunTrust Robinson Humphrey talked about this and the issues faced by retailers this summer on CNBC’s Squawk Box.

Magee felt that Williams-Sonoma, Inc. (NYSE:WSM) stock had been doing too good this quarter. It was up by almost 10 % in the recent weeks and that was one of the major reasons why the company was able to meet the market estimate.

“[…] The stock had done so good recently, it got ahead of itself, stock is up almost 10% in recent weeks and so they hit the number, they would have beaten the number had it not been for a higher tax rate […],” he said explaining about the unexpected tax rate which was responsible for the revenue falling slightly short of the market consensus.

As a retailer, Williams-Sonoma, Inc. (NYSE:WSM) had the option to adjust its pricing and catalog depending on the situation. The second quarter’s gross margin line reflected the retailer’s reduction in pricing as it was a tough summer for retailers all over. Though this was not a permanent situation, it must be approached with caution as it had a tendency to affect the value of the stock.

“We’ve seen this in the past and that is not a permanent condition but it does cause volatility in the stock,” observed Magee.

Disclosure: none