Williams-Sonoma falls as analysts say profit margins are weak and 3Q outlook disappoints

MarketsAssociated Press

Shares of Williams-Sonoma slid Thursday, a day after after the home furnishings retailer reported mixed second-quarter results and gave a disappointing third-quarter forecast.

The company behind the Williams-Sonoma, Pottery Barn and West Elm brands said its operating margins fell, and analysts said they weren't as good as expected. While the company's second-quarter net income met Wall Street estimates and revenue was stronger than expected, analysts noted Williams-Sonoma's profits got a boost from a one-time income tax benefit. Its third-quarter profit and revenue forecasts fell short of analyst projections.

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The company's shares lost $5.24, or 6.3 percent, to $77.88 in midday trading while the broader markets continued to recover from a sharp sell-off. Williams-Sonoma stock is trading around all-time highs and peaked at $89.38 earlier this month.

Williams-Sonoma said its supply chain costs rose because of the lingering effects of a labor dispute at West Coast ports. The dispute ended months ago, but it caused a large buildup in orders that were being imported or shipped overseas.

Cantor Fitzgerald analyst Laura Champine said Williams-Sonoma has struggled to raise its margins for several years and that it now looks like the situation won't improve in 2015.

"No other company we follow is still attributing weakness to the port disruption," she said.

Champine added that the company's e-commerce margins were especially weak, which is a problem because Williams-Sonoma gets most of its revenue from online and catalog sales.

KeyBanc Capital Markets analyst Bradley Thomas said he thinks the increased labor costs will continue to affect the company's results in the current quarter. Thomas said sales growth for Pottery Barn picked up in the second quarter and Williams-Sonoma owns "some of the strongest brands in the furniture and home furnishings industry," but said the shares are relatively expensive.

Both analysts rate the shares at the equivalent of "Hold."