Unique Ideas are Helping This Housewares Retailer Thrive
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Williams-Sonoma (NYSE: WSM) is a stock I have been considering as an investment. As an experienced equity analyst, the stock was appealing for its growth and expansion prospects in the high-end retail housewares market. Moreover, its mall-based stores are visually attractive and the kind of place where you and your spouse could spend hours looking at unique home products, particularly those targeted to home and professional cooks, while occasionally sampling store-cooked foods. The shares, trading around $45 as of the earnings presentation, were not left behind in the recent bull market. Prior to today's market open, the forward P/E was about 16 and WSM shares yield a bit less than 2%.
After the closing bell, Williams-Sonoma reported per share profits of $0.49, exceeding the prior-year's $0.41 mark. Revenues climbed 9% to nearly $945 million, as most of its concepts posted double-digit percentage top-line advances. Store expansion is not the catalyst by any means, as retail square footage was flat year over year. In fact, brand extensions and launches, along with solid gains in e-commerce spurred the increases. Accordingly, comparable-brand revenues have been rising briskly.
Innovation in the Kitchen
The core William-Sonoma stores and catalog offer a unique selection of cookware and tools, as well as a wedding registry. Its new, tech-heavy, "smart" tools are likely to win support from foodies and everyday cooks. The real igniters of growth for WSM, however, have been its Pottery Barn and West Elm brands. The former, where sales rose 11% year over year, is a haven of specialty furniture items and the stores also offer a nice setting for browsing until one finds the right never-before-seen addition to one's home or the perfect, possibly unusual gift. Pottery Barn Kids' sales soared 10%. The latter offers more modern furniture and decor. Recent launches of West Elm market, in addition to Mark and Graham (personalized gifts and accessories) should help to keep that brand fresh. WSM's current strength is a testament to the company's original product choices, and, though not generally a seller of commoditized items, the housing upturn may be wind at its back.
Aiming to Capitalize on Changing Preferences
Spending on the expansion of online selling capabilities, along with global and business initiatives will probably crimp margins in the fourth quarter, a factor that has weighed on the shares. The Internet strategy should continue to be a boon to the bottom line, despite its lacking the in-store experience that entices customers. This holiday quarter's top-line performance ought to be a gauge of the effectiveness of the website, along with that of the newly minted Mark and Graham gift-related business. Both existing and new visitors to its stores/sites will likely be attracted by the refreshed product lines and seasonal merchandise. WSM's unique atmosphere and ingenuity are what sets it apart. Few specialty rivals exist, while WSM faces competition from department stores and discounters. In comparison, Bed, Bath, and Beyond (NASDAQ: BBBY) has long competed in the home goods market, primarily vying with larger entities. WSM might take some hints from BBBY as to the updating and alteration of its merchandise mix. Where BBBY differs is in its larger store size and numerous product lines. BBBY has grown earnings at an impressive clip over the past couple of years and should be looked at for near-term price appreciation.
Near-term changes tend to drive long-term improvements, and it will over time become evident whether the company has effectively adapted to the current environment. Nevertheless, we believe those with a penchant for cooking high-quality meals, or tastefully decorating their homes, will be regulars at WSM's stores.
In all, we have seen positive signs on the retail front this earnings season, and WSM is not an exception. A key to consistently bringing in customers is constantly altering the product selection and store environment. Williams Sonoma appears to be doing both of these. Its foray into the online marketplace will be something to watch as it progresses, and if done with the same creativity and seemingly passion, the transition should move forward without a hitch.
dctotal has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Bed Bath & Beyond, PetSmart, and Williams-Sonoma. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!