Cramer: Williams-Sonoma shows how retail can win 

  • Williams-Sonoma is the latest in a long list of retailers that includes Target and Walmart to report strong quarterly earnings despite challenges facing the retail industry.
  • Selling primarily furniture, being unable to compete with Amazon on scale, dealing with massive freight costs, having a heavy mall presence and tariffs on furniture manufactured in China are all strikes against the company in the market's eyes, according to CNBC's Jim Cramer.
  • The Mad Money host disagrees, citing the company's latest quarterly results and modernization efforts.

Williams-Sonoma is the perfect example to explain how retailers are surprising investors in spite of pressure on the industry, according to CNBC's Jim Cramer.

The kitchenware and furniture seller is the latest in a long list of retailers that includes Target and Walmart to report strong quarterly earnings. Despite challenges over the past several years that include increasing raw materials costs, competition from Amazon and the ongoing trade conflict, most retailers — excepting L Brands and JC Penney — have held up this quarter against the pressure.

"Intellectually it seems like it should be too much for retail, which was supposed to wilt under these pressures," the Mad Money host said.

In its second-quarter report released on Wednesday, the San Francisco-based company said it earned 77 cents per share, up 9 cents from Wall Street estimates of 68 cents per share. Its revenues of $1.28 billion for the quarter also beat analysts' expectations of $1.26 billion. The parent company of Pottery Barn and West Elm also raised its forecast for full-year revenues and comps.

As a result of retail challenges, Cramer is seeing a high number of short positions in retail, with Williams-Sonoma among the most shorted retail stocks. Selling primarily furniture, being unable to compete with Amazon on scale, dealing with massive freight costs, having a heavy mall presence and 25 percent tariffs on furniture manufactured in China are all strikes against the company in the market's eyes, according to Cramer.

But Cramer doesn't agree. More than half of the the company's sales are online, which also makes business much cheaper. Responding to analyst questions about freight costs on the earnings conference call, management said that supply chain efficiencies have managed to offset those costs.

And while 15 percent of the cost of goods sold would be hit by proposed tariffs, the company also said that it would mitigate the impact of the tariffs.

"They're moving production out of China, ebecause they have a multi-country supply chain," Cramer said. "The loser won't be the American consumer. It will be those Chinese furniture companies."

The furniture seller also has addressed consumers' desire to visualize their new table or couch in their home with artificial intelligence techniques. Their brick-and-mortar stores are being used as showrooms, with the under-performing locations being closed.

"In short, every objection answered every single objection, which is why it's the perfect totem for what's working at this very moment in retail," he said.

Williams-Sonoma closed on Thursday up 16 percent.

WATCH: Why Williams-Sonoma surprised with earnings

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