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Time To Shop For Williams Sonoma?

Posted: Mar 25, 2009 10:51 AM by Glenn Curtis

Tickers in this Article: SHLD, PIR, BBBY, WMT, TGT, WSM

It wasn't all that long ago that shares of Williams Sonoma (NYSE:WSM) were trading north of $30, and everything seemed pretty promising in the retail world. However, as we now know, the macroeconomic picture was rattled and stocks in this space got hit hard. Over the last 52 weeks, the once high-flying Williams Sonoma has seen its share price range from a high of $29.81 to a low of $4.35.

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With talk that the economy may have bottomed, or is nearing a bottom, it might be time to bottom fish this stock. Let's look at some of the company's pros and cons to see if this is a wise investment.

The Pros
Williams Sonoma has a reputable name and offers quality merchandise. In addition, it has a fairly large retail footprint with more than 600 stores according to its latest earnings report. So, I think investors will agree that when this economy mounts a comeback, this company is well-positioned.

Then there is the dividend. Although dividends are never guaranteed, I think it is important to note that Williams Sonoma does have a respectable history of paying them. Earlier this month its board declared a 12 cent quarterly dividend. In that same release it was explained that the dividend declaration was due to a relatively unchanged business plan and having met expected operating results. (Balance risk and return to produce adequate income despite inflation, check out Build A Dividend Portfolio That Grows With You.)

This catches my attention because I think that the company could have cut the dividend to conserve cash, and Wall Street would have understood. After all, Macy's (NYSE:M), which is one of the highest-profile retailers around, announced earlier this year that its board voted for a dividend cut.

In its fourth quarter, (the release was disseminated March 24) Williams Sonoma earned 31 cents per share excluding items such as closing stores, asset impairment and job cuts. That was due north of the 16 cents per share that Wall Street had been looking for, and could certainly turn some heads in the analyst world.

The Bigger Picture
Thinking about the big picture here, I believe that despite this recent rebound in stock prices, consumers could be tight with their money for a while. This means that consumers will gravitate more toward stand-alone discounters like Target (NYSE:TGT) and Wal-Mart (NYSE:WMT).

Looking at Pier One (NYSE:PIR) and the troubles it's been having is a reminder that retails may still be a dangerous place to play. It may make sense to stick with the larger, and theoretically more stable players right now.

Another thing that is a bit of a turn off is the lack of insider buying over the last couple of months. If things looked so swell, why aren't executives buying shares in the open market? I don't want to harp on management/insiders, but a quick look at insider data suggests that execs/insiders at Bed Bath & Beyond (Nasdaq:BBBY) and Sears (Nasdaq:SHLD), both of which sell home-related goods, haven't been buying many shares in the open market. (Insider tracking can inform your investment strategy, but it requires research and a level head. Find out what to look for in When Insiders Buy, Should Investors Join Them? and Delving Into Insider Investments.)

The Cons
Finally, a Reuters article on Tuesday points out that Williams-Sonoma "expects losses for the first three quarters of 2009 and a profit in the fourth quarter. For the full year, the company forecasts results to range from a loss of 15 cents per share to a profit of 5 cents per share.” This is a con that may be big enough to undo all of the positive information that the company previously released.

Bottom Line
I don't mean to kick Williams Sonoma when it's down, as I think that it does have some things going for it. However, at this point I think that the cons outweigh the pros, and that there are better opportunities out there.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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