What to Make of Williams-Sonoma's Solid Quarter and Guidance

By Motley Fool Staff Markets Fool.com

In this MarketFoolery segment, host Chris Hill and Motley Fool Total Income's Ron Gross are upbeat on the specialty retail chain operator behind Pottery Barn, Rejuvenation, and West Elm, among others -- and, of course, its eponymous kitchen and housewares brand. It had close to flat comps growth overall, but with pockets of strong growth. Its e-commerce successes are also fairly significant.

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A full transcript follows the video.

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This video was recorded on May 25, 2017.

Chris Hill: Williams-Sonoma's (NYSE: WSM) first quarter looked good. Their guidance was a little stronger than expected. Odd to watch the stock this morning, because right at the open, it was up somewhere in the neighborhood of 8%. It is still in positive territory, but it's come back down from that. Again, that's what you want to see -- good results over the past three months, and nice guidance going forward.

Ron Gross: Yeah, they're doing a fine job. They've not been knocking the cover off the ball, they've gone in and out, had some struggles here and there. Their same-store sales, which they actually call comparable brand revenue, I don't know why they have to be all unique about it -- was basically flat, 0.1%, that's versus 4.5% growth last quarter. So, I think investors are looking at that and saying, what's going on sequentially? It doesn't look that great. But, you do have some pockets of strength. Williams-Sonoma, the actual store brand itself, was up 3.2% in terms of same-store sales. But there was also struggles. PBteen, which I'm not sure is really needed at this point, is down 14%. Pottery Barn Kids down 6%. It seems like the brands that are focusing on the youth are really struggling.

Hill: West Elm did pretty well, didn't they?

Gross: 6% comp sales up, that's pretty strong, without a doubt. That's one of their pockets of growth, it has been pretty strong lately. I think they're counting on it to remain strong to make up for some of these other lackluster results.

Hill: Isn't that high end furniture, it's a little bit on the expensive side?

Gross: A little bit, I wouldn't necessarily call it high end, but on the pricier end of discount, and certainly not discount.

Hill: But that's the sort of thing where, if you have that in your portfolio, you don't need it to be double-digit same-store sales growth. If you're selling stuff at a little bit of a premium, then every 1-2% higher makes a bigger impact.

Gross: Yeah, double-digit same-store sales growth just in general is difficult to put up time and time again. That's not really realistic in an economy that does 2% GDP overall.

Hill: Yeah, but, people got their tax refunds.

Gross: There you go. But, I will say, the one thing that Williams-Sonoma, years and years ago, said they needed to do and have done, is to push toward online sales. That was essential. Now, online sales do make up 52% of overall sales. So, nicely done there.

Hill: Is that just in the name brand, or is that across all?

Gross: That's across. I was actually skeptical years ago when I saw that was really the thesis, and I stayed away from the stock, I guess to my peril. Again, it hasn't done that great, it's only up 5% this year, 40% over the last five years, so it hasn't really done great. But to their credit, they did do what they said they needed to do.

Chris Hill has no position in any stocks mentioned. Ron Gross has no position in any stocks mentioned. The Motley Fool recommends Williams-Sonoma. The Motley Fool has a disclosure policy.