Tuesday, March 24, 2009

“We Believe We Have Stability”

You wouldn’t expect much out of Williams-Sonoma these days.

What with the evaporation of high-paying Wall Street jobs and the kind of buyer who can afford to spend $635 on a chafing dish—which calls to mind one of the best moments in movie history, from Hot Shots!, no less—not to mention the evaporation of low-paying manufacturing jobs and the disappearance of that so-called “aspirational buyer,” you wouldn’t think there would be much of a market for the kind of foofy, “consumer discretionary” items Williams-Sonoma, and its Pottery Barn affiliate, are famous for.

Yet all good economic cycles must, eventually, end: even the bad ones.

And if this down-cycle is ever going to start to turn back up, it has to first stop going down.

So we were intrigued to hear on the company’s conference call this morning the following from Sharon McCollam, the Williams-Sonoma COO:

What we would say about the current environment is we believe we have stability and we are seeing the October/November trend be our baseline. We see it's volatile. But that's what we're seeing.

Now, whether Williams-Sonoma is an appropriate thermometer to measure the health of the American consumer may be debatable.

But at least the patient’s fever looks like it might—might—have stopped going up.

Jeff Matthews
I Am Not Making This Up

© 2009 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.


Annie and Lyon Jewett said...

eh....I don't believe a word she said....

Mark B. Spiegel said...

Sure, I believe that it (the consumer sector in general) is not getting any worse. However, I also think that things will stay "down here" for a very long time. What does that mean for retail-sector stocks? Well, those that had been "priced for bankruptcy if things kept getting worse" but can avoid it (bankruptcy) "if things stabilize without necessarily needing to get better" will go up, then stabilize at (still crappy) levels. (However, much of that rise may have already happened over the past few weeks.) On the other hand, those that were never priced for bankruptcy (because they had minimal debt or were unencumbered by too many store leases) may now be overpriced, as many of their holders were anticipating a consumer turn by the middle of next year, and I don't think that will happen.

Anonymous said...

Dunno, Jeff. I do believe we'll see a few of this sort of coming up for air before being dragged under once more. This is too big a shift to be done with so soon.

Also, no offense, but this post popped to mind:

Anonymous said...

"If we are unable to identify and analyze factors affecting our business, anticipate changing consumer preferences and buying trends, and manage our inventory commensurate with customer demand, our sales levels and profit margin may decline."

Risk Factors, Page 25, WSM 10Q - Q308 [bold and italics mine]

I think I see where the stability may lay when I read in WSM's 03-24-2009 press release that WSM, according to CEO Howard Lester, "reduced their year end inventory by a better than expected $121 million or 17% - which accounted to a year end cash balance of $149 million".

Optimizing cash flow by proactively managing inventory levels with consumer demand should allow WSM to stabilize their quarterly earnings going into the rest of 2009.

What's interesting (amazing) is that WSM still declared a dividend of .12 in the latest quarter, which is yet another signal in my opinion that WSM's management sees some sense of operational stability going into 2009, despite the tough economic environment for sales.

I could be wrong though.

Josh said...

Not even. Where's the huge wave of credit card defaults? It's coming. Retail is in the eye of the storm...