04:07 PM EDT, 08/19/2024 (MT Newswires) -- Williams-Sonoma ( WSM ) faces "limited" downside risks to consensus estimates for the fiscal second quarter and full year amid decelerating traffic in a challenging macroeconomic environment, Wedbush Securities said on Monday.

With engaged traffic to the home furnisher likely down 15% in the quarter, decelerating from the first quarter's 11% decline, the brokerage sees "only modest downside" to its comparable sales forecast.

While Wedbush is modeling for a 1.9% decline in comparable sales and the consensus is projecting a 2.7% decrease, the actual drop could be in the 3% to 4% range, the report showed. Williams-Sonoma ( WSM ) is scheduled to report results for the July quarter on Thursday.

There's also "modest" downside risks to Wedbush's $1.60 earnings per share estimate and the consensus' $1.61 forecast at the $1.55 level, but in-line margins are not out of the question, a group of analysts including Seth Basham wrote. Wedbush is comfortable with its second-quarter margin estimates despite the sales softness, he said.

The brokerage remains constructive on the retailer heading into the print given subdued investor expectations and the prospect for market share gains within Williams-Sonoma's ( WSM ) two core brands, Pottery Barn ( WSM ) and West Elm. Wedbush reiterated an outperform rating and a $175 price target on the stock, citing its view of "at worst a modest miss and guide down."

"While some investors expect a material miss and guide down, we see limited downside to the quarter and the full year outlook," Basham said. "We believe that (Williams-Sonoma ( WSM )) is navigating the challenging demand environment by emphasizing compelling product with solid value and storytelling."

Web site traffic data for Williams-Sonoma ( WSM ) and commentary from other retailers such as Wayfair ( W ) and Arhaus ( ARHS ) suggest weakening demand in July, according to Wedbush. While West Elm and Pottery Barn ( WSM ) notched year-over-year traffic gains of 7% and 11%, respectively, in the first two months of the quarter, traffic at both brands decelerated by 3% in July.

For the second quarter as a whole, West Elm's engaged traffic grew 3% year over year, halving its rate of growth from the first quarter, while Pottery Barn's ( WSM ) improved by 6%, "an encouraging sign" following a first-quarter decrease of 5%, Basham said.

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