Investors were given a lesson Wednesday in the perils of chasing after consumer-discretionary stocks in such a fraught economic environment.Shares of furniture and home-accessories retailer Williams-Sonoma gained 11% in Tuesday's rally, following the rest of the consumer-discretionary stocks, which attracted renewed interest despite poor economic data on housing and consumer confidence.
The broader consumer-discretionary sector held together for a solid gain Wednesday as well, but the trading in Williams-Sonoma shows what can happen when guessing on the wrong company. The S&P consumer-discretionary sector rose 9.8% Tuesday, and was up an additional 2.1% Wednesday, but shares of Williams were hit hard after the company said it expects losses in its fiscal third quarter and slower-than-expected growth in the fourth quarter.
The stock fell 24%, or $2.49, to $8.01, hitting a 52-week low, after reaching a low Friday.
"I don't like to buy when stocks make a new 52-week low; there are better places to put one's money," said Bruce Zaro, chief technical strategist at Delta Global Advisors.
Mr. Zaro said high-end retailers are being valued at "catastrophe" levels, with investors anticipating a poor holiday shopping season due to listless economic growth. It doesn't help Williams-Sonoma that it sells products related to one of the weakest segments of the economy, housing.
The declines aren't daunting to value-oriented players such as William Reik, managing member at Reik & Co., which owns the stock. "They're out of favor; the macro environment is not encouraging for a stock like this right now," he said. "Of course, we perceive it as tremendous opportunity at these levels."
The company's Pottery Barn stores are getting hit hardest, with sales at stores open at least one year falling 27% in October from the year-ago period, a weakening of already sluggish trends present in August and September.
Those who have chosen to buy the stock over the past year haven't been rewarded; a one-year chart of the shares looks like a staircase to the basement. Analysts said economic conditions are largely responsible for the stock's performance, but many don't believe investor attempts at grabbing the beaten-down stock will be rewarded for some time. Kristine Koerber of JMP Securities said the company's balance sheet is intact, though she recommended that "investors sit on the sidelines as we believe a turnaround is a long way down the road."
"The ones that have come down the most will likely have a fairly aggressive bounce from the bottom," Mr. Zaro said. "But on some of these, you have individual risks."
