Williams Sonoma (WSM) excited the shareholders by announcing a dividend increase of some 8.3%, substantial and well in excess of inflation. Shareholders rewarded themselves and boosted the stock upwards. It trades near its 52 week high and needs something to breakout.
The company seems to be doing well. They sourced lots of cash, closed down poor locations. They also let their payables and accrued employee compensation increase somewhat which only added to the cash position.
So what do we believe in? The dividend signal is powerful. Management and the board have told the market that prosperous times are about to unfold. They still carry some $8.7 Billion in long term debt which is four times their current market cap. The consumer can survive by not shopping at Williams Sonoma. So if you are concerned about a double dip recession, this one is vulnerable.
Speaking of the danger of a double dip, management comments in the press release were non existent about the economy and how their offerings were faring. The only comment from Howard Lester, Chairman and CEO, was slight double speak, a comment about Q4 economic fragility but how they expect good things in 2010. Read this snippet and see if you can spot the psyche game:
While our fourth quarter results were substantially better than we expected, given the continuing fragility of the economy, in 2010 we will continue to garner the benefits of the strategic and tactical initiatives that drove our success in the fourth quarter.
Howard Lester also went on the say that the cash position went up with no debt. Hey dude, you mean no new debt, you still have a lot of long term debt around which you have to service. Here is the offending quote;
Our fourth quarter non-GAAP diluted earnings per share grew from $0.31 to $0.86 and we ended the year with over $500 million in cash and virtually no debt.
Too much window dressing on the cash, no debt comment. Good luck with the dividend signal strategy.