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Williams-Sonoma (WSM): On The Offensive In Holiday 2012?

 December 27, 2012 04:28 PM

Data suggest that the holiday selling season is again proving promotional for Williams-Sonoma, Inc. (NYSE: WSM).

Holiday 2011 at the Williams-Sonoma concept proved to be a very promotional and competitive selling season, particularly at retail and in branded products.

The current 2012 holiday selling season is proving thus far to be very promotional, again,  and investors are asking how this is playing out at the Williams-Sonoma concept.

Williams-Sonoma is a leading specialty retailer in the home fashion category operating more than 600 stores. The company sells products through the Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Williams-Sonoma Home concepts. The direct-to-customer segment also sells similar merchandise through 7 direct-mail catalogs and 6 e-commerce websites.

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"Offers this year appear more frequent and more aggressive. We are optimistic that the more aggressive stance that WSM is assuming in holiday 2012 is suggestive of better vendor support and a heightened dose of conservatism embedded within guidance provided to investors," Oppenheimer analyst Brian Nagel said in a note to clients.

The company balances merchandising strength with better analytics to drive consistent top line growth and improving margins. Several near term merchandising initiatives, top line support from improvements in housing and related home furnishing sales bodes well for the company.

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Merchandising initiatives include adding more seasonal and gift giving products and the launching of an additional brand this fall along with several other programs like the Starbucks Verismo launch, Pottery Barn Dorm and Agrarian.

Williams-Sonoma is also augmenting initiatives around increasing private label and continues to leverage its occupancy to help offset pressures from shipping promotions. The continued shift to more on line sales also helps contribute to better operating margins.

As a result, the company and its Pottery Barn division, which accounts for about 40 percent of sales are positioned well for 2013 amid a strengthening home market.

"We tracked on average 2-3 Williams-Sonoma brand promotional emails daily vs. 1-2 emails in the same period last year. Our analysis suggests an increase in targeted price promotion offers such as 1-day deals," Nagel said.

The company has aggressively planned to differentiate the Williams-Sonoma concept throughout the year from online only retailers by adding exclusive products and in some cases branching into new categories.

For the third quarter, San Francisco-based Williams-Sonoma earned $48.9 million or 49 cents per share, up from $43.4 million or 41 cents per share last year. Revenues for the three-month period grew 8.9 percent to $945 million, and gross margin advanced to 39.0 percent from 38.3 percent last year.

Looking ahead to the fourth quarter, the company expects earnings in the range of $1.21 to $1.28 per share on revenues of $1.36 billion to $1.40 billion. Analysts currently expect earnings of $1.30 per share for the quarter, on revenues of $1.40 billion.

For the full year, the company sees earnings in the range of $2.41 to $2.48 per share, adjusted earnings of $2.45 to $2.52 per share, and revenues of $4.995 billion to $4.035 billion. Analysts currently expect earnings of $2.55 per share on revenues of $4.04 billion for the full year.

"We continue to look favorably upon Williams-Sonoma (WSM) as one of the best run multi-channel companies throughout retail," Nagel added.



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