Williams-Sonoma's (WSM) roughly 220-basis-point merchandising gross margin headwind was the disappointment in Q1, but this is expected to ease meaningfully into Q2, RBC Capital Markets said in a note Thursday.
The firm said management attributed the headwind mainly to higher year-over-year input costs, including ocean freight, and tariff mitigation costs, including storage costs related to halted shipments.
"We get the sense that tariff-related costs drove the bulk of the headwind and that most of these should subside as we roll into Q2," RBC said.
The firm added that it expects the freight cost headwind to soften throughout the year.
RBC lowered its price target on Williams-Sonoma to $182 from $189, and maintained its outperform rating.
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