By Senad Karaahmetovic
Shares of Williams-Sonoma (NYSE:WSM) are trading about 3% lower today after Jefferies analysts downgraded to Underperform from Hold with a price target of $100 per share, down from $160.
The analysts argue that retailers “overearned,” with WSM being a poster child. They also stated that WSM operates in an “increasingly competitive landscape.”
“EBIT% expanded >900 bps cumulatively from '19-'22E, well above retail peers. With our expectations for C'23E comps flattish, occupancy tailwinds will disappear. More important, investors underestimate selling margin reversion in C'23E driven by inventory availability and a more price-sensitive consumer. We see elevated West Elm promos on rugs, lighting, and outdoor furniture, supporting our GM% well-below the Street,” the analysts wrote in a note.
The company should also see slower demand as its fastest-growing client group is millennials. Given the rapidly rising mortgage rates, Jefferies urges clients to avoid exposure to first-time homebuyers.
“Based on recessionary category performance, JEF comps are cumulatively ~600 bps below Street through F'26. Based on rising promos, Street GM% is 50-60 bps too high in F'24 + F'25,” they concluded.
Net-net, the analysts see WSM shares underperforming ahead of a softer macro and could potentially see the pain lasting until 2025.