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By Paul Goodwin

As an emerging markets specialist, I usually recommend a stock from outside U.S. borders. But I also watch the wider market, and for this issue I’ve picked a U.S. stock with an intriguing story and an earnings-powered gap up under its belt. It’s a specialty retail company that’s had some good earnings news and has another good reason for attracting attention.

Williams-Sonoma (NYSE:WSM) is a San Francisco-based retailer that operates more than 600 stores including 264 Williams-Sonoma high-end kitchen stores, more than 200 Pottery Barns and nearly 100 Pottery Barn Kids stores along with a few dozen outlets and other brands.

The company has been lowering costs by putting greater emphasis on online sales, allowing it to reduce its bricks-and-mortar footprint while still increasing profits. Management says it will close 16 stores by the end of the year.

The company’s earnings report Wednesday revealed a surprise profit of five cents per share despite a fall in revenues. (See earnings call transcript.) Sales were down 18% year-over-year.

Williams-Sonoma’s stores, especially its kitchen stores with their expensive pots and pans, aren’t really expected to do well when the economy is contracting. When times are tough, people can heat a can of beans right in the can, if necessary. But management is getting through this thin patch with aggressive cost cutting, which will keep the company in good financial shape until the economic winds pick up again.

I have one additional, possibly silly, reason for recommending Williams-Sonoma. It has to do with the popularity of the movie “Julie & Julia,” in which a thirty-something New Yorker sets out to cook every recipe in Julia Child’s Mastering the Art of French Cooking in one calendar year and blog about the experience.

The movie has been a hit and the book has risen to #1 in sales at both Amazon and Barnes & Noble and is #3 at independent booksellers. It may not last long, but the surge in enthusiasm for classic French cooking (plus the sight of all those beautiful Le Creuset pots in the movie) seems to me like a perfect catalyst for an unexpectedly robust quarter for Williams-Sonoma stores and for the stock.

WSM has already made a huge move from its low of 4 late last year and it re-launched from 15 1/2 to 17 1/2 on huge volume after Wednesday’s earnings news.

A small bet on WSM, especially if you can pick some up on a pullback below 17, and holding it until the next earnings report could pay off handsomely.

Source: Williams-Sonoma: What's Cooking?

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