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Williams-Sonoma Rises 41% YTD: Should You Buy WSM Stock Now?
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Williams-Sonoma, Inc. (WSM - Free Report) has gained 41.4% year to date (YTD), comfortably outperforming the Zacks Retail - Home Furnishings industry’s 2.2% growth and the Zacks Retail-Wholesale sector’s increase of 13.1%. It has also fared well than the S&P 500’s rise of 17.5%.
This multi-channel specialty retailer of premium quality home products has also broadly outperformed its peer companies like RH (RH - Free Report) , down 16.9% YTD), Haverty Furniture Companies, Inc. (HVT - Free Report) , down 32.4%) and Ethan Allen Interiors Inc. (ETD - Free Report) , down 15.3%).
Williams-Sonoma is reaping the rewards of its strategic focus on diversifying its product portfolio and establishing a sustainable operating model with the competitive advantage of a digital-first but not digital-only channel strategy. With a robust e-commerce platform and a thriving Business-to-Business (B2B) division, the company is poised for significant growth. Its brands boast a wider array of unique products, including numerous exclusives and collaborations. Benefiting from these favorable conditions, the company is expanding its global presence and reaching new heights of growth, despite persistent challenges in consumer spending.
Image Source: Zacks Investment Research
What’s Driving Williams-Sonoma?
E-Commerce Platform: The technological evolution has fundamentally altered the retail industry's dynamics, with the e-commerce boom profoundly impacting business models. Williams-Sonoma has emerged as one of the United States' leading e-commerce retailers, consistently maintaining its status as one of the most profitable enterprises in the sector.
From a long-term perspective, Williams-Sonoma envisions a continued industry shift from traditional retail to online platforms. E-commerce penetration has been steadily increasing, bolstered by the company's in-house tech platform, a rapid experimentation program, content-rich online experiences, and effective marketing strategies. Currently, Williams-Sonoma's e-commerce penetration is approximately 66%, with expectations for this figure to gradually rise to 70% over time.
For 2024, the company's capital allocation plans focus on funding its business operations and investing in long-term growth. Williams-Sonoma plans to spend $225 million in capital expenditures to support its long-term growth, with 75% of this investment dedicated to enhancing its e-commerce leadership and supply chain efficiency. This underscores the digital-first nature of the company's business strategy.
Competitive Edge: Williams-Sonoma stands out in the highly competitive specialty e-commerce and retail market. The company’s strength lies in its brand authority, superior merchandise quality, robust e-commerce platforms and strategic marketing capabilities.
The company’s in-house design teams and talented suppliers bring high-quality, sustainable products to market, supported by a high-touch multi-channel platform. The company leverages world-class customer analytics and first-party data to optimize digital marketing, driving sales and acquiring new customers. WSM’s investment in proprietary e-commerce technology and AI leadership solidifies its position as an industry leader.
Focus on B2B: Williams-Sonoma's effective B2B strategy enables it to capture a significant market share in the fragmented home furnishings industry. Operating in two formats, trade and contract, the B2B segment achieved remarkable growth in the first quarter of fiscal 2024, expanding 10% year over year and driving record-breaking demand. The trade business grew 6%, while the contract business, which accounts for about one-third of the B2B segment, surged 18% year over year. This success is attributed to its diverse clientele, ranging from supplying sofas for UC San Diego dorms to corporate gifting for Pebble Beach Company. Additionally, the company saw continued growth from major project clients such as Marriott, Dave & Buster's, and Jamestown Properties.
Focused on accelerating its contract business, Williams-Sonoma is experiencing positive momentum in this less housing- and consumer trend-dependent segment. Significant wins in the hospitality, sports, and entertainment verticals highlight its strategic importance and potential for future growth. Leveraging its strong brands, design expertise, global sourcing capabilities, and efficient delivery system, Williams-Sonoma is optimistic about its long-term prospects and recent improvements in the B2B market.
Strategic Efforts & Innovations: Williams-Sonoma is well-positioned for growth, driven by the strength of its brands, strategic efforts, and innovative merchandising initiatives. Despite some challenges, key brands under the WSM umbrella are demonstrating resilience and potential for expansion. Meanwhile, while international sales faced macroeconomic headwinds, bright spots were noted in India, Mexico, and Canada.
Looking ahead, Williams-Sonoma is focused on improving West Elm’s merchandising and driving growth. The brand is emphasizing new product introductions and collaborations and maintaining stock on modern aesthetics. Williams-Sonoma is also excited about exclusive products like the new navy Jura espresso machine and impactful collaborations, including the recent one with Netflix's Bridgerton. Pottery Barn Kids/Teen will continue to focus on collaborations, baby products, and dorm assortments while Pottery Barn prepares for fall and holiday updates with new collaborations.
Williams-Sonoma’s strategic focus on brand strength, innovative merchandising, and impactful collaborations positions it well for sustained growth in the competitive retail landscape.
WSM Trading Below 50-Day Moving Average
WSM shares are trading well below the 50-day moving average, broadly because of the softness in the retail sales. Furniture sales were down 1.1% in May from April 2024 and down 6.8% year over year. As of Jul 8, the stock closed at $285.18, which is below its 52-week high of $348.51 but much higher than its 52-week low of $120.74.
WSM Price Movement vs 50-Day Moving Average
Image Source: Zacks Investment Research
A sluggish housing market and a slowdown in consumer spending continue to pose significant challenges. Rising inflation and higher interest rates are straining consumer resilience, leading households to prioritize essential purchases while reducing discretionary spending.
Meanwhile, Williams-Sonoma’s margins have benefited from lower ocean freight costs, supply chain efficiencies, and reduced promotional activity, but these advantages are now waning. The company's 2024 guidance suggests flat operating margins from the second to the fourth quarter of the current fiscal year. Some gross margin benefits may persist, likely reinvesting in advertising. Yet, higher incentive compensation expenses are anticipated.
Williams-Sonoma is a stronger operator post-pandemic, with a sustainable operating model poised for profitable growth. The brand's differentiated products, exclusives, and collaborations drive revenue based on product value rather than promotions.
Estimates Revision Trend
The Zacks Consensus Estimate for fiscal 2024 EPS has increased 5.3% and 4% for the next year over the past 60 days. The positive estimate revision depicts optimism about the stock’s growth potential. The estimated figure indicates 8.3% and 4.1% year-over-year growth for fiscal 2024 and 2025, respectively.
Image Source: Zacks Investment Research
Solid Financial Position
Williams-Sonoma ended the fiscal first quarter with $1.3 billion in cash and no debt. Since the second quarter of fiscal 2023-end, Williams-Sonoma has maintained a debt-free, strong financial position. This allowed the company to invest $40 million in capital expenditures and return $107 million to shareholders through share repurchases and dividends in the first quarter of fiscal 2024.
In March, Williams-Sonoma announced a 26% increase in its quarterly dividend payout to $1.13 per share, marking the 15th consecutive year of increased dividend payouts. Additionally, the company has $956 million remaining under its $1 billion share repurchase authorization, which will be used to opportunistically buy back stock and deliver returns to shareholders. Check WSM’s dividend history here.
WSM Trading at a Premium
The company is currently valued at a premium compared to its industry on a forward 12-month P/E basis.
Image Source: Zacks Investment Research
Higher ROE
WSM’s trailing 12-month Return on Equity (ROE) is indicative of its growth potential. ROE for the trailing 12 months is 54.5%, much higher than the industry’s 41.6%, indicating the company’s efficient usage of shareholders’ funds.
Image Source: Zacks Investment Research
Investment Thoughts
Dwindling consumer confidence, housing market fluctuations and economic uncertainty are indeed potential risks for WSM. Along with these risk factors, the company’s flat operating margin expectation and premium valuation are concerns.
Despite its premium valuation, the stock remains compelling for investors. Williams-Sonoma’s leadership in e-commerce, resilient operating model, supply-chain efficiencies, focus on B2B segment and expansion plans, solid balance sheet, and commitment to return cash to shareholders are likely to mitigate downside risks.
Image: Bigstock
Williams-Sonoma Rises 41% YTD: Should You Buy WSM Stock Now?
Williams-Sonoma, Inc. (WSM - Free Report) has gained 41.4% year to date (YTD), comfortably outperforming the Zacks Retail - Home Furnishings industry’s 2.2% growth and the Zacks Retail-Wholesale sector’s increase of 13.1%. It has also fared well than the S&P 500’s rise of 17.5%.
This multi-channel specialty retailer of premium quality home products has also broadly outperformed its peer companies like RH (RH - Free Report) , down 16.9% YTD), Haverty Furniture Companies, Inc. (HVT - Free Report) , down 32.4%) and Ethan Allen Interiors Inc. (ETD - Free Report) , down 15.3%).
Williams-Sonoma is reaping the rewards of its strategic focus on diversifying its product portfolio and establishing a sustainable operating model with the competitive advantage of a digital-first but not digital-only channel strategy. With a robust e-commerce platform and a thriving Business-to-Business (B2B) division, the company is poised for significant growth. Its brands boast a wider array of unique products, including numerous exclusives and collaborations. Benefiting from these favorable conditions, the company is expanding its global presence and reaching new heights of growth, despite persistent challenges in consumer spending.
Image Source: Zacks Investment Research
What’s Driving Williams-Sonoma?
E-Commerce Platform: The technological evolution has fundamentally altered the retail industry's dynamics, with the e-commerce boom profoundly impacting business models. Williams-Sonoma has emerged as one of the United States' leading e-commerce retailers, consistently maintaining its status as one of the most profitable enterprises in the sector.
From a long-term perspective, Williams-Sonoma envisions a continued industry shift from traditional retail to online platforms. E-commerce penetration has been steadily increasing, bolstered by the company's in-house tech platform, a rapid experimentation program, content-rich online experiences, and effective marketing strategies. Currently, Williams-Sonoma's e-commerce penetration is approximately 66%, with expectations for this figure to gradually rise to 70% over time.
For 2024, the company's capital allocation plans focus on funding its business operations and investing in long-term growth. Williams-Sonoma plans to spend $225 million in capital expenditures to support its long-term growth, with 75% of this investment dedicated to enhancing its e-commerce leadership and supply chain efficiency. This underscores the digital-first nature of the company's business strategy.
Competitive Edge: Williams-Sonoma stands out in the highly competitive specialty e-commerce and retail market. The company’s strength lies in its brand authority, superior merchandise quality, robust e-commerce platforms and strategic marketing capabilities.
The company’s in-house design teams and talented suppliers bring high-quality, sustainable products to market, supported by a high-touch multi-channel platform. The company leverages world-class customer analytics and first-party data to optimize digital marketing, driving sales and acquiring new customers. WSM’s investment in proprietary e-commerce technology and AI leadership solidifies its position as an industry leader.
Focus on B2B: Williams-Sonoma's effective B2B strategy enables it to capture a significant market share in the fragmented home furnishings industry. Operating in two formats, trade and contract, the B2B segment achieved remarkable growth in the first quarter of fiscal 2024, expanding 10% year over year and driving record-breaking demand. The trade business grew 6%, while the contract business, which accounts for about one-third of the B2B segment, surged 18% year over year. This success is attributed to its diverse clientele, ranging from supplying sofas for UC San Diego dorms to corporate gifting for Pebble Beach Company. Additionally, the company saw continued growth from major project clients such as Marriott, Dave & Buster's, and Jamestown Properties.
Focused on accelerating its contract business, Williams-Sonoma is experiencing positive momentum in this less housing- and consumer trend-dependent segment. Significant wins in the hospitality, sports, and entertainment verticals highlight its strategic importance and potential for future growth. Leveraging its strong brands, design expertise, global sourcing capabilities, and efficient delivery system, Williams-Sonoma is optimistic about its long-term prospects and recent improvements in the B2B market.
Strategic Efforts & Innovations: Williams-Sonoma is well-positioned for growth, driven by the strength of its brands, strategic efforts, and innovative merchandising initiatives. Despite some challenges, key brands under the WSM umbrella are demonstrating resilience and potential for expansion. Meanwhile, while international sales faced macroeconomic headwinds, bright spots were noted in India, Mexico, and Canada.
Looking ahead, Williams-Sonoma is focused on improving West Elm’s merchandising and driving growth. The brand is emphasizing new product introductions and collaborations and maintaining stock on modern aesthetics. Williams-Sonoma is also excited about exclusive products like the new navy Jura espresso machine and impactful collaborations, including the recent one with Netflix's Bridgerton. Pottery Barn Kids/Teen will continue to focus on collaborations, baby products, and dorm assortments while Pottery Barn prepares for fall and holiday updates with new collaborations.
Williams-Sonoma’s strategic focus on brand strength, innovative merchandising, and impactful collaborations positions it well for sustained growth in the competitive retail landscape.
WSM Trading Below 50-Day Moving Average
WSM shares are trading well below the 50-day moving average, broadly because of the softness in the retail sales. Furniture sales were down 1.1% in May from April 2024 and down 6.8% year over year. As of Jul 8, the stock closed at $285.18, which is below its 52-week high of $348.51 but much higher than its 52-week low of $120.74.
WSM Price Movement vs 50-Day Moving Average
Image Source: Zacks Investment Research
A sluggish housing market and a slowdown in consumer spending continue to pose significant challenges. Rising inflation and higher interest rates are straining consumer resilience, leading households to prioritize essential purchases while reducing discretionary spending.
Meanwhile, Williams-Sonoma’s margins have benefited from lower ocean freight costs, supply chain efficiencies, and reduced promotional activity, but these advantages are now waning. The company's 2024 guidance suggests flat operating margins from the second to the fourth quarter of the current fiscal year. Some gross margin benefits may persist, likely reinvesting in advertising. Yet, higher incentive compensation expenses are anticipated.
Williams-Sonoma is a stronger operator post-pandemic, with a sustainable operating model poised for profitable growth. The brand's differentiated products, exclusives, and collaborations drive revenue based on product value rather than promotions.
Estimates Revision Trend
The Zacks Consensus Estimate for fiscal 2024 EPS has increased 5.3% and 4% for the next year over the past 60 days. The positive estimate revision depicts optimism about the stock’s growth potential. The estimated figure indicates 8.3% and 4.1% year-over-year growth for fiscal 2024 and 2025, respectively.
Image Source: Zacks Investment Research
Solid Financial Position
Williams-Sonoma ended the fiscal first quarter with $1.3 billion in cash and no debt. Since the second quarter of fiscal 2023-end, Williams-Sonoma has maintained a debt-free, strong financial position. This allowed the company to invest $40 million in capital expenditures and return $107 million to shareholders through share repurchases and dividends in the first quarter of fiscal 2024.
In March, Williams-Sonoma announced a 26% increase in its quarterly dividend payout to $1.13 per share, marking the 15th consecutive year of increased dividend payouts. Additionally, the company has $956 million remaining under its $1 billion share repurchase authorization, which will be used to opportunistically buy back stock and deliver returns to shareholders. Check WSM’s dividend history here.
WSM Trading at a Premium
The company is currently valued at a premium compared to its industry on a forward 12-month P/E basis.
Image Source: Zacks Investment Research
Higher ROE
WSM’s trailing 12-month Return on Equity (ROE) is indicative of its growth potential. ROE for the trailing 12 months is 54.5%, much higher than the industry’s 41.6%, indicating the company’s efficient usage of shareholders’ funds.
Image Source: Zacks Investment Research
Investment Thoughts
Dwindling consumer confidence, housing market fluctuations and economic uncertainty are indeed potential risks for WSM. Along with these risk factors, the company’s flat operating margin expectation and premium valuation are concerns.
Despite its premium valuation, the stock remains compelling for investors. Williams-Sonoma’s leadership in e-commerce, resilient operating model, supply-chain efficiencies, focus on B2B segment and expansion plans, solid balance sheet, and commitment to return cash to shareholders are likely to mitigate downside risks.
Given the above-mentioned tailwinds and strong returns, investors may consider adding this Zacks Rank #1 (Strong Buy) stock to their portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.