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Williams-Sonoma (WSM)
Williams-Sonoma Reports $18.7 Million Loss
Williams-Sonoma Incorporated (WSM: Charts, News, Offers) announced a first quarter loss of $18.7 million today. Williams-Sonoma's first quarter plummet is a stark contrast from last year's quarter profit of $10.5 million. Although the home décor franchise saw its revenue drop 22%, Williams-Sonoma still managed to report lower-than-expected losses for the quarter. However, the San Francisco-based furniture retailer is well aware that repeated quarterly performances like this one will not sit well with investors. How was Williams-Sonoma able to beat out Wall Street expectations? What is the impact of this quarter's performance on Williams-Sonoma's future?
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The primary cause of Williams-Sonoma's recent troubles has been the overall housing market fallout. The increasing home foreclosure rate and consumer uncertainty have put a considerable dent in Williams-Sonoma's demand levels. The combination of the floundering housing market and struggling economy has created a difficult situation for a franchise that sells up-scale home furnishings and cookware. Nonetheless, Williams-Sonoma Inc. has found ways to improve performance despite these challenges.
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The San Francisco-based furniture retailer has keyed in on controllable factors, as oppose to situational factors, in its attempt to improve performance. Williams-Sonoma has been reducing its inventory levels to better match up with current consumer demand. The company's improved inventory forecasting has helped eliminate the need for markdowns and clearance sales, which cut into its profit margins. Williams-Sonoma has also been forced to scale back its fulltime workforce by 18% and reduce its advertising budget. Overall, William-Sonoma's effort to cut unnecessary costs and spending has led to its better-than-expected first quarter.
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Williams-Sonoma's future outlook has not changed too much. As expected, it has maintained its full-year forecast and seems dedicated to its current cost cutting strategy. The home furnishing retailer is hoping that its continued diligent inventory forecasting and tight extraneous budget will help improve profit margins. In addition, there is outside speculation that the housing market may be close to entering a recovery phase. The National Association of Realtors reported that pending home sales rose for a third month. There is also increasing buzz about Wal-Mart and J.C. Penny reporting improved performance in its home goods sector. Although these reports may inspire hope, only time will tell if they are long term indicators of the housing market's direction or merely short term, circumstantial improvements.
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Williams-Sonoma took a considerable hit this quarter, but has implemented a few techniques to help combat its falling performance. While the health of the housing market and economy are out of its control, Williams-Sonoma Inc. has shifted its focus to better budget management and inventory forecasting. The San Francisco-based furniture retailer also seems confident that a turnaround in the housing market would jumpstart its performance. The question is: when will this economic resurgence happen? Williams-Sonoma is hoping sooner rather than later.
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