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Upscale retailer Williams-Sonoma, Inc. (WSM), which I first wrote about on December 14, 2009 at a price of $22.00, is a rare retail play that has promise, and I obviously still like the shares here. Look for Sonoma's sales to increase a healthy 8-10% in 2010, admittedly against easy comparisons, but investors will take the upside, just the same. Further, the argument forwarded here calculates that higher-end retail chains like Williams-Sonoma will bounce back sooner than the general-consumer retail segment. Hence, the 'frugal consumer' trend remains in force, but high-end consumers, encouraged by a recovering U.S. economy, will start to part with a few more bucks at the mall.
Look for a snap-back in the namesake Williams-Sonoma chain (259 stores). The sales outlook is less certain for the Pottery Barn (199 stores) brand.
The First Call FY2010/FY2011 EPS estimates for WSM are $1.57 to $1.77. Each EPS estimate looks about 5-10% low, according to my analysis.
Technically, WSM's shares have pulled-back slightly after clearing psychological resistance at $30, offering a decent entry point for those who missed the December 2009 start.
2010 Outlook: I view Williams-Sonoma as a long-term play, but if investors are looking to sell WSM within the year, it's probably best to take your profits after it rises to $37-39, if it fails to clear $40.
Stock Analysis: I consider Williams-Sonoma to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in WSM now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my WSM position before July 2010 and I'd put a sell/stop loss at: $8.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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