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We believe a company's fundamentals are the most important factors when deciding what companies to add to your portfolio. An important part of that research is the earnings report. When companies report earnings, investors have a chance for a better understanding of where the company is going. Williams-Sonoma (NYSE:WSM) and Costco (NASDAQ:COST) recently reported earnings. From what their conference calls are saying, these two stocks are buys, with a special note on Costco.

Williams-Sonoma

Williams-Sonoma is a premier retailer of high-end home furnishings with locations in the United States and Canada. It was founded in 1956 and now owns several brands in the industry. These brands include Williams-Sonoma, Pottery Barn, West Elm, and four other brands.

In their Q4 earnings report, the company reported a diluted EPS increase of 15% to $1.34 and net revenues of $1.406 billion. Those numbers are impressive, considering that many expected the luxury retailers to be suffering this economy. For FY 2012, EPS grew at 14% and net revenues grew 8.65%. These numbers show that management has been able to continue to grow the business and that the consumer is still spending in the luxury market.

On guidance, Williams-Sonoma projects Comparable Brand Revenue Growth to be between 4-6% and for EPS in FY 2013 to be $2.65-$2.75 compared to $2.54 in FY 2012. This would be a growth of between 4.33% and 8.27%. This means Williams-Sonoma plans on continuing their growth. Also, Williams-Sonoma has shown its ability to keep their expenses from growing as they have kept Gross Margins at 41.3% YoY.

With all this good news, Williams-Sonoma is only trading at 18.2x forward earnings compared to 88.3x forward earnings for the Specialty Retailers Industry. This may be a great way for investors to play both the strength in luxury retailers and the housing recovery that seem to be major themes in 2013.

But Williams-Sonoma is not just a play for this year but also many years to come. Its projected 3-5 year EPS growth is 28.1%. Williams-Sonoma is also paying you to stick around for that growth by paying increasing its dividend by 41%. This is all great news for investors looking for yield.

Bottom line: Williams-Sonoma is a great addition for an investor looking to profit from the recovery in housing and consumer spending.

Costco

Costco is another company that reported great earnings this past week. The company first opened in 1976 under the name Price Club. It now has over 630 locations and 67.4 million loyal cardholders. The company reported strong numbers for Q2. It reported an EPS of $1.10 versus consensus of $1.06. EPS for Q2 was up 15.79% over last quarter and up 22% over Q2 of 2012. Costco did this while retaining members and controlling costs.

Costco is expected to have EPS growth of 9.7% this year and 10.7% for next 3-5 years. This growth is about the consumer services sector which is expected to grow at 8.6% this year. This is strong growth and well worth investors' attention. And it is easy to see why. Middle-class consumers love Costco. As the consumer continues to spend, expect to see a lot of that money spent at Costco.

Is Costco a buy? Yes, but only on a pullback. Costco is currently trading at 22.3x forward earnings and if you divide that by its growth rate and dividend yield, its PEG ratio is 2.07. This is quite high compared to its peers. Costco is currently overvalued but that is due to its popularity with traders and will pull back on any weakness. Investors would be wise to jump into the stock on any pullback.

Bottom line: Costco is a buy, but wait for a pull back.

Source: Williams-Sonoma And Costco: Your Plays For Housing And A Stronger Consumer