What's Cooking At Williams-Sonoma?
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Why is Williams-Sonoma Inc (NYSE: WSM) at a 52 week high and close to an all-time high? Simple, they reported better than expected Q2 earnings on August 21. Net earnings increased 7.3% to $874 million from $815 million a year ago. The stock rose 10% to $42.94.This is just $ 0.06 below the price target from BB&T analyst Anthony Chukumba’s August 23 upgrade and above the Deutsche Bank raised price target of $38 with a hold. Goldman Sachs is maintaining its Buy rating.
Another reason it rose was that competitor Bed Bath & Beyond Inc (NASDAQ: BBBY) had reported a disappointing Q1 on June 20 so expectations were low for Williams-Sonoma. Bed Bath & Beyond also guided lower for the rest of the year citing competitive pressure from Amazon forcing more expenditures on their online presence. Shares sank 15% on this news. This report kept Williams-Sonoma down on sympathy most of the summer.
A couple years ago Wall Street was decidedly bearish on Williams-Sonoma with the pricey cookware and home furnishings retailer expected to perform worse than most housing or luxury related stocks as it was exposed to both. Since late 2008 when the stock was just below $5.00 it is now an eight-bagger with good odds it can become that mythical ten-bagger.
The stock is up 29.49% over the last year and has an 18.36 P/E and a 2.40% dividend.
Not Just for Rich Foodies
Williams-Sonoma is not just a high end foodie paradise. It also owns home furnishing divisions, Pottery Barn, West Elm and Rejuvenation (kitchen and bath fixtures and other home décor hardware). It may have started as just a cookware store in 1956 in San Francisco which serendipitously grew along with the popularity of Julia Child and the adoption of more adventurous eating habits in America. Now, it has 576 stores in the US, Canada and Puerto Rico as well as 6 e-commerce sites, catalogs for Williams-Sonoma, Pottery Barn, PB Kids, PB Teen, Williams-Sonoma Home, West Elm and Rejuvenation. From the beginning the company has been very location savvy strategically locating in upscale retail neighborhoods.
All their catalogs and websites are drool worthy with gorgeous photography and helpful cooking, entertaining and decorating content. The products are functional yet beautiful and Steve Jobs himself would consider them masterpieces of design and utility.
One thing the company announced along with earnings is its debut outside North America in Sydney, Australia with four brands. Opening is planned within the next 6-8 months and will feature a cutting-edge (pun intended) cooking school.
Cutting Out The Competition
Comparisons with competitor Bed, Bath & Beyond are interesting because the shopping experience is so different. William-Sonoma and Pottery Barn stores are in higher-end malls and locations and offer tastings and cooking classes and well trained salespeople to offer suggestions for the aforementioned decorating, cooking and entertaining. Bed, Bath and Beyond stores are more DIY as in find it yourself and good luck getting questions answered. Sorry to be a little snarky.
As for fundamental comparisons, Bed, Bath & Beyond has a lower P/E of 15.59 but no yield. The institutional holds are similar at 86% institutional and 12% of insiders at Williams-Sonoma and 81.90% institutional and 13.06% for Bed, Bath & Beyond. Williams-Sonoma has almost half the market cap and number of stores yet it’s intriguing that sales per square foot at Williams-Sonoma are $361 compared to $264 at Bed Bath & Beyond.
Bed Bath & Beyond has 995 stores including 72 Christmas Tree shops, 68 buy buy BABY and 45 Harmon stores all of which are in North America.
But Bed Bath & Beyond is moving into that space that fellow competitor, Pier 1 Imports, Inc (NYSE: PIR) has held with Bed, Bath & Beyond’s acquisition of Cost Plus World Market in May for $550 million. Pier One has the lowest P/E of the three at 11.86 and a .90% yield. They report on September 10 a week before Bed, Bath & Beyond. It has finally launched its long awaited e-commerce site. Pier One has the most stores with 971 in the United States and 81 in Canada yet is the the smallest in market cap at 4.20 billion.
Who Makes The Cut?
Williams-Sonoma is decidedly ahead of both Pier One and Bed, Bath & Beyond with its online e-commerce sites already firmly in place. It also has the highest yield and best sales per square foot. Keeping in mind Bed, Bath & Beyond’s lowered guidance at their last earnings release Pier One and Williams-Sonoma are preferable stocks to own. One last plus for Williams-Sonoma is the opening in Sydney, Australia which shows their determination to expand internationally. Despite 52 week highs and a higher P/E, Williams-Sonoma is a quality name on any pullback. You may just get your chance if its competitors disappoint in the next month. Bon Appetit!
leglamp 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 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.If you have questions about this post or the Fool’s blog network, click here for information.