A week ago Williams-Sonoma Inc. (WSM) reported strong fourth quarter 2009 earnings and the share price jumped more than $3. The company also raised its dividend by more than 8%. The stock hit a 52-week high the day after an analyst downgraded Williams-Sonoma shares from ‘Buy’ to ‘Hold’.

Bed Bath & Beyond Inc. (BBBY) will release fourth quarter earnings next week, and partly as a response to the Williams-Sonoma surprise, a Bank of America Merrill Lynch analyst has raised Bed Bath & Beyond’s EPS estimate from $0.71 to $0.77 and the retailer’s share price target from $44 to $50.

A much smaller competitor in the home furnishings space is Kirkland’s Inc. (KIRK) with a market cap of about $420 million compared with $2.8 billion for Williams-Sonoma and $11.5 billion for Bed Bath & Beyond. Kirkland shares have risen some 700% in the past year, and hit a new 52-week high a couple of weeks ago. Even though there has been a significant amount of insider selling, investors continue to push Kirkland’s share price higher.

Some other interesting features in this sector are the near invisibility of long-term and the sharp increase in cash. Williams-Sonoma holds long-term debt of just $8.7 million. Bed Bath & Beyond have no long-term debt at all.

Kirkland finished the fourth quarter with about $36.5 million in cash, about 6 times the amount the company reported for the same period a year ago. Williams-Sonoma also increased its cash year-over-year by 25%, to almost $149 million. One year ago, Bed Bath & Beyond had about $668 million in cash, and at the end of the company’s third quarter it had about $855 million.

The fastest moving shares in the sector belong to Pier One Imports, Inc. (PIR), which has seen its 52-week price spike from a low of $0.51 to $6.81. Like Bed Bath & Beyond, the company reports earnings next week and has recently raised its quarterly EPS estimate to $0.29, above analysts’ average estimates of $0.25.

The home furnishings sector has benefitted from a strong holiday season during which the companies were able to hold the line on prices. Gross margins increased across the board, and inventory levels have been pretty stable.

The good results that have been reported and that are still expected from this group are expected to continue. Cash flows have been good, debt is very low, margins are improving, and inventory is under control. What’s not to like?

Tell us what you think here.

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