Shares of high-end kitchenware retailer Williams-Sonoma (WSM) rose as much as 13% Wednesday after the company reported better-than-expected quarterly sales and raised its outlook for the rest of the year.
Even though same-store sales dropped 15% during its latest fiscal quarter, the San Francisco-based retailer still managed to post a quarterly profit of $399,000, breaking even on a per share basis and surpassing its earlier forecast of a loss of eight to 14 cents a share. The company reported a profit of 17 cents a share in the year-ago quarter. Analysts on average expected a loss of nine cents a share.
Looking ahead, the company said it expects to post a profit of a penny a share for the current quarter and earnings of 19 to 31 cents a share for the fiscal year. While the company expects same-store sales to drop by 12% to 15%, cost-cutting measures should help the company achieve its earnings projections, Chairman and CEO Howard Lester said.
On a conference call, Lester said the cost-cutting moves include boosting its store closings for this year to 16 from nine, eliminating 1.2 million square feet of distribution capacity and 80,000 square feet of office space. The company is also reducing the number of catalogs it sends.
Wedbush Morgan analyst Joan Storms said in a research note that strong management, aggressive inventory management, a streamlined supply chain and strong balance sheet would help the company bolster its earnings. "The company continues to execute on cost controls and inventory management while the balance sheet continues to improve," she wrote.
Brian Nagel, an analyst with Oppenheimer & Co., said he was concerned that the company may be erring too far on the side of caution and the cutbacks could hurt the company down the road. "Capacity reductions lately will likely limit WSM's earnings recovery potential over the next few years," he wrote. "Aggressive markdowns on lower price points could significantly tarnish the company's once pristine brand image. In our view, the market has been too quick to bid WSM shares up in the hopes of a return to peak profitability."
Bottom Line: Hold
Williams-Sonoma's management has amply shown its ability to navigate a crisis, but investors should wait to see if it can gain traction once the recovery finally takes hold.
Investors bet against Isle of Capri Casinos (ISLE) Wednesday, pushing the shares 14% lower in midday trading after the gaming chain reported worse-than-expected quarterly earnings.
The St. Louis-headquartered company posted earnings of two cents a share for the quarter ended July 26, well below analysts' estimates of 15 cents a share.
The casino industry is reeling in most areas as gamblers feel the pinch of world-wide recession. Isle of Capri plans to pare back its international operations in the near term, exiting the Bahamas no later than Oct. 31, and expects to dispose of its remaining United Kingdom operations by the end of the calendar year.
"Our industry is undergoing major changes," Executive Vice Chairman and CEO Jim Perry said on a Wednesday conference call. "Over the next five years we are likely to see the increase in supply outpace the increase in demand across the country. No longer will our industry be able to be successful just by building or expanding new facilities."
Oppenheimer & Co. analyst David Katz said near-term pressures would hurt Isle's shares, but forecast improved performance as the recession eases.
"Continued operating improvement coupled with limited capital spending should continue to generate strong cash and deleveraging," he wrote. "We view the announcement as bearish for the shares, but recommend buying on weakness."
Bottom Line: Hold
It's not a matter of feeling lucky -- investors need to believe in a long-term picture of recovery before they start feeding those slot machines again.