Stock Spotlight

Retailer's online focus pays off

 

Suppose we told you that for more than half of the April quarter, a retailer had shuttered all 616 of its stores. What kind of operating results would you expect for that quarter? Probably not great.

Taking those closures into consideration, analysts projected Williams-Sonoma’s ($93; WSM) same-store revenue would fall more than 14% for the quarter. However, the company managed a 2.6% increase, helped by a 31% gain in e-commerce sales. In retrospect, this resilience shouldn’t surprise us; in a CFRA study of retailers’ ability to weather the coronavirus, Williams-Sonoma ranked highest among home-furniture sellers, in part because of its higher-income consumer base.

In the last fiscal year, the company generated 56% of its revenue from online sales. Credit several years of aggressive investment in the company’s electronic platform and social-media program. That heavy internet presence left the company better prepared than most retailers to deal with a stay-at-home environment.

Williams-Sonoma, which yields 2.1%, is a Buy and a Long-Term Buy.

Business breakdown

Williams-Sonoma operates stores under its namesake brand, as well as Pottery Barn and West Elm.

• Williams-Sonoma stores sell cookware, cutlery, tableware, and some specialty foods. This brand accounted for 17% of company sales in fiscal 2020 ended January.

• Pottery Barn sells furniture and home goods the company designs itself (38% of sales).

• Pottery Barn Kids and Teen sell furniture and accessories targeting younger consumers (15%).

• West Elm markets furniture, fabrics, lighting, and home accessories (25%).

• The last 5% of revenue comes from three smaller brands, Rejuvenation, Mark and Graham, and Outward, which sell products ranging from cabinets to jewelry to gift items.

Looking ahead

For the year, the consensus calls for sales growth of 1% and a 5% decline in per-share profits. However, that sales target has increased 9% and the profit target 49% over the last 90 days, reflecting massive surprises relative to estimates in the April quarter and encouraging guidance from the company. Analysts now expect 3% sales growth and 7% profit growth next year — targets that seem beatable.

Going forward, Williams-Sonoma should benefit from a permanent increase in the proportion of retail sales that occur online. Also, if the economic shutdown leaves more people working out of home offices or cooking more often, Williams-Sonoma has the product lineup to tap those trends.

At 20 times trailing earnings, Williams-Sonoma seems reasonably valued, trading roughly in line with its industry despite its competitive advantages.

In the April quarter, the company kept up its share-buyback program, albeit with plans to be “opportunistic” about new purchases. The share count fell 0.6% in the April quarter and 1.8% over the last four quarters.

Williams-Sonoma Inc., 3250 Van Ness Ave., San Francisco, CA 94109, (415) 421-7900, www.williams-sonoma.com.

 

 

 

Quadrix Scores

 

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