"There is a macro (economic) issue but it is very much in the lower end of the demographic that we currently serve," Sharon McCollam, Williams-Sonoma's chief operating and chief financial officer, said at a Goldman Sachs (NYSE:GS) conference.
In the most recent conference call, the CEO Howard Lester reiterated the same sentiment about macro-economic factors:
When we last updated our guidance in mid-July, we believed that the softness we were seeing was specific to the execution of our Pottery Barn summer merchandising strategy," Lester said in a statement. "Today, however, after five weeks in home with our new Pottery Barn fall catalog, we believe there is a greater macro-economic issue also affecting this business. To date, the consumer response in Pottery Barn is continuing to trend well below our expectations, causing us to approach the third and fourth quarters with an extremely cautious outlook."
Historically, the company looks rather cheap from a numbers standpoint. The average 5 year p/e is about 23 whereas the forward p/e sits at about 15.7 using low-end estimates. The PEG ratio is below 1. It appears these macro-economic issues have been priced into the stock as Williams-Sonoma caters to the wealthier customers who are able to stand higher gas prices and a weakening economy.
William-Sonoma has has great success at finding ways to grow and should be able to maintain at least a 15% growth rate over the next 5 years due to its superior brand recognition. The balance sheet is strong with a 20% ROE, minimal debt, and strong cashflows.
It is difficult to tell from listening to the quarterly conference call whether the weakness at Pottery Barn is a result of a company-specific issue or, like they say, an "economic issue." A slowdown in real estate is an obvious concern, but the company should be able to handle this better than a lower-end retailer like Pier One (NYSE:PIR).
In addition, CEO Howard Lester just bought over $10 million in stock as it nears its 52- week low. This may indicate a good sign from the inside that things are not as bad as Wall Street is making them out to be. The stock could easily jump 20% in the next 12 months.