RBC Capital has adjusted its outlook on Williams-Sonoma (NYSE: NYSE:WSM), reducing the stock's price target to $147 from $150 while sustaining an Outperform rating.
The firm's analysis followed Williams-Sonoma's management expressing a more guarded stance on revenue prospects and reaffirming their second-half margin forecast, which faces tougher gross margin comparisons. This has been perceived as a negative quarter for investors.
The management's conservative approach and the ability to reduce advertising spending are seen as factors that will likely protect the second-half earnings per share (EPS). However, the analyst acknowledged that the potential for margin improvement seems constrained until there is a turnaround in sales.
Despite these challenges, the current stock pullback, combined with long-term leverage opportunities, was cited as a favorable moment for the company to buy back shares.
RBC Capital revised its estimates for Williams-Sonoma's comparable sales for fiscal years 2024 and 2025 to -3.5% and +2.0%, respectively, a change from the previous -0.4% and +4.6%. Additionally, the EPS forecasts for the same periods have been adjusted to $9.47 and $8.19 from $9.43 and $8.24.
The new price target of $147 is based on approximately 18 times RBC Capital's updated fiscal year 2025 EPS estimate of $8.19.
In other recent news, Williams-Sonoma reported mixed financial results, with earnings per share exceeding expectations, despite a revenue shortfall. The company also lowered its top-line guidance due to a 3.3% dip in same-store sales.
However, it managed to beat earnings per share estimates by 8%, thanks to improved merchandise margins and supply-chain efficiencies. In an effort to expand its investor base, Williams-Sonoma executed a two-for-one stock split, which prompted revised price targets from TD Cowen and Telsey Advisory Group, both setting the target at $170.
The company also announced the addition of Arianna Huffington to its Board of Directors. This recent development is part of a series of significant events for the company, including financial services firm Jefferies reducing the company's stock price target to $148 while maintaining a Hold rating. Meanwhile, Citi reaffirmed its Neutral rating for Williams-Sonoma, keeping its price target steady at $152.00.
Also, TD Cowen reiterated its Buy rating on the company's stock post-split, while Telsey Advisory Group maintained an Outperform rating, adjusting its price target to $170 from $340.
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