Williams-Sonoma Inc. (NYSE:WSM) posted another solid quarter, with resilient sales and industry-leading margins. However, the stock slipped as investors looked ahead to a sharply higher tariff bill that threatens to squeeze profitability heading into 2026.
Telsey Advisory Group analyst Cristina Fernández reaffirmed her Outperform rating on Williams-Sonoma but lowered her price forecast to $220 from $225, applying a ~24x P/E multiple to her updated 2026 EPS estimate.
She said the company delivered a good third quarter, with consistent comparable sales growth, strong full-price selling, and disciplined cost control that kept operating margins in the high teens.
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Fernández noted that comps have stayed within a 3.4% to 4.0% range for three straight quarters, signaling steady demand across the company's major brands.
Fernández said the market reaction—shares slipped roughly 2%—reflected growing concern about higher tariff costs rather than the quarter's operational strength.
Williams-Sonoma reported that tariff expenses were lower than expected in the third quarter because several increases were delayed; however, it expects a notable spike in the fourth quarter. The blended tariff rate has jumped to 35% from 6% a year ago.
She highlighted that Williams-Sonoma has offset much of the impact through vendor concessions, sourcing shifts, supply-chain efficiencies, SG&A reductions, and selective price increases, though she still models mild operating-margin pressure ahead.
She added that a U.S.–India trade deal could ease future pressure, given that 16% of the company's goods originate from India and currently face a 50% tariff.
Fernández said Williams-Sonoma remains well-positioned long-term due to a balanced revenue mix between furniture and non-furniture, white-space merchandise opportunities, a flexible cost structure, scale at roughly $8 billion in annual sales, and a debt-free balance sheet with about $900 million in cash.
The company maintained its 2025 revenue growth outlook of 0.5% to 3.5% and raised its operating margin forecast to 17.8% to 18.1%.
Fernández now models 2025 EPS of $8.73 and 2026 EPS of $9.05, reflecting more conservative assumptions around rising tariffs.
TD Cowen analyst Max Rakhlenko also reiterated a Buy rating on Williams-Sonoma and lowered his price forecast to $210 from $225, reflecting a more cautious stance as the company navigates rising tariffs and ongoing cost pressures.
Price Action: WSM shares were trading higher by 1.80% to $177.76 at last check Thursday.
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