Williams-Sonoma Up 10% After Earnings Blowout

Williams-Sonoma Wins The Retail Wars 

Williams-Sonoma (NYSE: WSM) has proven to be a real winner in the post-pandemic world. The company’s reliance and focus on eCommerce is only part of a larger story that had the company set up for big gains when COVID-19 swept the world. The company’s position as a widely-recognized quality brand of home and lifestyle products played a big part in the success as well. Now, more than a year into the crisis, the company’s growth is only accelerating and points to another solid year of gains for investors. 

Williams-Sonoma Has Another Blowout Quarter 

Williams-Sonoma has had a great 12 months and it looks like business is only going to get better. The FQ4 revenue is not only an acceleration from the prior quarter it is up 24.5% YOY and the growth is accelerating as well. The 24.5% Q4 increase is 230 basis points better than the prior quarter's gain and a record $2.29 billion in sales. Sales strength was underpinned by a 47.9% increase in eCommerce that pushed digital revenue to 70% of the total. In regard to the analyst, the Q4 revenue is better than consensus by 460 basis points. 

Moving down the report, the company was able to expand the gross and operating margins above guidance. The gross margin improved 450 basis points to 42.1% to aid a 630 basis point increase in adjusted operating margin. The adjusted operating margin of 17.9% resulted in EPS of $3.95 of nearly double the last year’s earnings and $0.65 better than the consensus.

Looking forward, the company is guiding for mid-to-high single-digit growth this year and we feel that estimated is very cautious.  Looking at last year’s results, it won’t take much for the company to sustain this level of growth over the next 2 to 3 quarters at least and that is assuming a down-tick in post-holiday sales and no expansionary efforts are taken.

“We are very optimistic about our runway for growth and profitability. All of our brands are starting the year strong, and we expect this strength to continue through 2021 and beyond based on a number of factors. First, it is the ongoing momentum of our growth initiatives and the increasing relevance of our three key differentiators. Second, it is the recovery in our retail traffic and our inventory levels as we move throughout the year. And third, it is the favorable macro trends that are expected to continue to benefit our business for the long-term, including high consumer confidence, a strong housing market, an accelerating shift to e-commerce,” says CEO Laura Alber. 

Williams-Sonoma Is A Deep-Value Dividend Grower 

 Even with this morning’s 13% jump in share prices, Williams-Sonoma stock is trading at a mere 15.5X next year’s earnings guidance. Considering the company’s results, the outlook, the dividend health, the 11% dividend increase that was just announced, and the new $1 billion buyback authorization 15.5X earnings is a pittance. In our view, Williams-Sonoma should be trading at least 20X its earnings like Target (NYSE: TGT) and could go as high as 25X like Bed Bath & Beyond (NASDAQ: BBBY) or 27X like Restoration Hardware (NYSE: RH), all of which are leading post-pandemic home and lifestyle plays. 

The Technical Outlook: A Multiple-Expansion Is On

Shares of Williams-Sonoma popped on the Q4 news and outlook and we are not surprised. The price action is now above the all-time high and on track for a major multiple expansion. The risk for traders and investors in the near-term is profit-taking and a relatively high short interest. The two could weigh on prices over the next few days so chasing price-action for an entry is not recommended. Support will possibly be very strong at the previous all-time high, if not shares of WSM could pull back to the $141 level and close today’s gap before moving up to set new all-time highs.