Talk about bucking the trends!
Williams-Sonoma's latest results not only trounced analysts' forecasts and prompted the company to raise its outlook for the year, but the retailer did so against some pretty challenging headwinds.
The results prove two things: Affluent consumers have money if they want to spend it, and retailers can coax them to spend—if they have the right merchandise and an appealing message.
Retail earningsover the past few days have continued to paint a picture of a wary consumer. In many cases, retailers have used cost controls to squeeze out profits, as sales remained weak.
This has been particularly true of retailers that cater to lower- and middle-income consumers, with the likes of Wal-Mart Stores posting another decline in same-store sales and merchants such as J.C. Penney and BJ's Wholesale warning about the second half of the year.
Not so for Williams-Sonoma . The home-goods chain, which operates both its namesake kitchen stores and furnishings chain Pottery Barn, said sales rose 15.4 percent to $776 million, topping estimates of $757.9 million.
Those higher sales helped drive net income to $30.8 million, or 28 cents a share, up from with earnings of $399,000, or breakeven on a per-share basis, a year ago. Excluding items, the company earned 31 cents a share in the latest quarter, far above the 22 cents a share analysts were expecting.
So how does a retailer that sells home goods—a sector that has been languishing in the wake of the bursting housing bubble—win over consumers?
For one, the company has ramped up its email marketing efforts and increased its focus on new product lines and exclusive merchandise. Some of these products come with lower price tags than the company has fetched in the past. But the strategy has helped it to win over new customers.
All the while, the company hasn't lost its core consumer.
"We think this is reflective of a broader trend of spending among the affluent," said Neely Tamminga, an analyst at Piper Jaffray, in an interview on CNBC.
"The affluent consumer clearly has the capacity to spend, but it is still up to the retailer and the category for them to have the proclivity to spend."
Williams-Sonoma is a good operator, said Tamminga, who has an "outperform" rating on its stock. She said she believes the company has found a way to appeal to consumers who are spending more time entertaining at home.
Maggie Gilliam, president of independent research firm Gilliam & Co, told CNBC.com that Williams-Sonoma is "executing so superbly."
"They are positioned as the leading authority on home entertaining and cooking," Gilliam said.
Britt Beemer, chairman of America's Research Group, told CNBC that high-income consumers, just like those in lower income brackets, have curtailed their spending. But, he said, they do have spending power and can buy the items they perceive to be a good value.
"I've said this for years. Every great retailer should have three words carved into their forehead: 'It's merchandising, stupid'," Beemer said.
While picking the right products clearly has helped the company, Beemer also thinks Williams-Sonoma has benefited from moving its stores to so-called lifestyle center malls, which cater to a more affluent consumer.
He also suspects that higher-income consumers are holding back on their spending because they are worried about higher taxes in the future.
Some have even gone so far as to say that the taxation chatter needs to die down before the affluent will spend, but Williams-Sonoma's results show some retailers don't need to wait that long if they have the right product mix.
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