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Williams-Sonoma Stock Tanks on Weak Q3 Comp Brand Revenue Growth

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Third-quarter performance

Williams-Sonoma (WSM) posted its earnings results for the third quarter of fiscal 2018 after the market closed on November 15. For the quarter, which ended on October 28, the company reported adjusted EPS of $0.95 on revenue of $1.36 billion. Year-over-year, the company’s adjusted EPS rose 10.5%, while its revenue rose 4.4%.

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Stock performance

During the quarter, Williams-Sonoma outperformed analysts’ EPS expectation of $0.94. However, its revenue and comparable brand revenue growth fell short of analysts’ expectations. The company’s comparable brand revenue growth came in at 3.1% compared to analysts’ expectation of 4.2%.

WSM’s demand comp, which accounts for the total orders placed by customers in the quarter, stood at 4.6% in the period. The company’s management stated that many US importers had accelerated their shipments from China before the effects of the trade tariffs kicked in, leading to congestion and a delay in product receipts. The delay resulted in the difference between comparable brand revenue growth and the demand comp.

Despite management’s statement, the company’s stock price fell. On November 16, WSM fell to a low of $51.85 before closing at $53.76, a fall of 11.2% from its previous day’s closing price.

Year-to-date performance

Despite the decline, WSM was still trading 4.0% higher YTD (year-to-date). During the same period, its peers Home Depot (HD) and Lowe’s (LOW) returned -6.6%, and 0.3%, respectively. Meanwhile, the stock price of the broader comparative index, the SPDR S&P Homebuilders ETF (XHB), which holds 22.5% in home improvement and furnishing companies, fell 22.7% YTD.

Series overview

In this series, we’ll analyze WSM’s performance in the third quarter and compare its performance with analysts’ expectations. We’ll also cover its management’s guidance and analysts’ expectations for 2018. We’ll end this series by looking at the company’s valuation multiple and analysts’ recommendations. First, let’s look at the company’s revenue in the third quarter of fiscal 2018.

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