More Strong Results From Retail: Williams Sonoma And American Eagle

Includes: AEO, WSM
by: Valuentum

Two more retailers reported strong results last week: home goods retailer Williams-Sonoma (NYSE:WSM) and teen retailer American Eagle (NYSE:AEO). Though consumer spending in the U.S. economy doesn't appear to be accelerating, U.S. consumers continue to pick winners and losers.

Williams-Sonoma, which owns Pottery Barn, West Elm and its namesake, reported fantastic results for its second quarter. Revenue was slightly better than consensus expectations, growing 7% year-over-year to $874 million. Earnings were also slightly better than expected, increasing 16% year-over-year to $0.43 per share. West Elm and Pottery Barn drove the solid results, with same-store sales increasing 16% and 12%, respectively. Both retailers focus on home decorum and furniture, suggesting new household formation and possibly renewed confidence in general economic conditions.

The firm also raised its full-year earnings guidance range to $2.44-$2.51 per share, from its previous guidance range of $2.43-$2.49 per share. Though consensus full-year estimates already called for $2.50 per share, we think the market appreciated the reinforcement. The company remains confident in the housing recovery, and being the first to launch the Starbucks (NASDAQ:SBUX) Verismo single-serve espresso machine should leave it well positioned to profit in the back half of the fiscal year.

Meanwhile, teen retailer American Eagle demonstrated that it understands the new reality in teen retail. Unlike competitors Aeropostale (NYSE:ARO) and Abercrombie & Fitch (NYSE:ANF), American Eagle has focused on reducing inventories while bringing product to market faster to keep up with ever changing trends, as well as Forever 21 and h&m. Abercrombie in particular hasn't changed its look in several years--though the preppy look and the Hollister surfer look are no longer as in-fashion as they once were.

Revenue grew 11% year-over-year to $740 million in its second quarter, a touch better than consensus expectations. Same-store sales grew at a healthy clip of 9%, much better than the 1% growth rate we saw during the same quarter a year ago. Earnings, adjusted for the closing of its children's unit, grew 62% year-over-year to $0.21 per share, in-line with consensus estimates.

Looking ahead, the firm boosted its full-year earnings guidance to $1.33-$1.36 per share, which came in higher than the current consensus estimate of $1.33 per share. However, we still believe shares are fairly valued, and though the company is doing a better job of getting new product into stores, we aren't big fans of the highly fickle and competitive teen retail industry. Shares only score a 5 on our innovative, forward-looking Valuentum Buying Index (our stock-selection methodology).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.