Williams-Sonoma Is A Proven Winner
Williams-Sonoma (NYSE:WSM) emerged as a pandemic-winner over the summer and what I can say now is that trends are accelerating. The combination of brand and eCommerce is a winning combination that is driving not only high-double-digit sales growth but accelerating sales growth.The company is the owner of Williams-Sonoma, Pottery Barn, and West Elm; all focused on home-living and lifestyle and comes with a healthy eCommerce presence. The company was killing it with eCommerce before the pandemic struck and that put it in perfect position when it did.
“Our vision is to own the home. And, with our distinctive positioning we will only become more relevant. We have the strategies, the team and the world-class platform to maximize the industry trends that favor our business and successfully execute on our growth opportunities. We are confident that we will continue to drive accelerating sales growth,” said Laura Alber, President and CEO.
Williams-Sonoma Wins Earnings Season
I was expecting to see most S&P 500 companies beat their consensus targets this quarter because the consensus was too low. Estimates were cut to much in the early pandemic, the rebound was much stronger than expected, and the analysts just hadn’t had time to catch up. That said, the consensus estimate for fiscal 2020 earnings has doubled since its low, and Williams-Sonoma still beat it by double-digits.
On the top-line, revenue came in at $1.76 billion. This is up 22.2% from the last year, accelerated from the prior quarters +10%, and beat the consensus by 1000 basis points. The gains were driven by a near-25% increase in comp-store sales that more than doubled the consensus. Strength was seen in all brands led by the core Williams-Sonoma brand. Williams-Sonoma comps surged 30% and were closely followed by a 24% increase at Pottery Barn and a 22% increase at West Elm.
In all cases, revenue was underpinned by eCommerce. Revenue grew 49% across all eCommerce channels offset by an 11% YOY decline of in-store sales. The silver lining to that one bit of bad news is that in-store sales are up sequentially and show signs of rising. Moving down the report things get even better. The company was able to control costs, leverage sales growth, and expand margins by 410 basis points at the gross level. Gross margins came in at 40% versus the 36.6% expected and drove stunning bottom-line results.
At the bottom-line, Williams-Sonoma delivered $2.54 in GAAP earnings and $2.56 in adjusted EPS that both beat consensus by more than $1.00. The 3Q EPS puts the company on track to meet the full-year consensus (newly adjusted for 3Q strength) but I think the consensus is still too low. The fourth quarter is the company’s best of the year and the $2.44 estimate doesn’t reflect this year’s robust growth trend.
Williams-Sonoma Is A Deep-Value And A Dividend Payer
Williams-Sonoma offers a deep value to investors trading about 13X this year’s earnings consensus and 16X next. The consensus for next year assumes a YOY decline in revenue that is not in-line with reality. Based on the company’s growth trends and outlook the 2021 P/E is closer to 13X and then there is the dividend to consider. Williams-Sonoma pays about 2.0% with shares trading near $110 and the payment is safe and growing.
At face-value, the payout ratio is running near 25% of earnings with an outlook for sustained EPS growth. The balance sheet backs that up, the company is carrying more than $12 per share in cash and carries only a modest amount of debt. The leverage ratio is running near 1.25 FCF so nothing to worry about there. The history of growth hit 14 years with the last distribution increase, the next is due out next summer and could be quite large.
Williams-Sonoma Is Breaking Out
Shares of Williams-Sonoma popped 10% in the early hours and opened a large gap with the first trade. The first trade has shares at a new all-time high and above a previous resistance point and looking strong. Price action fell in the first hour after the open but so far the selling is not intense. With a gap that large investors should expect price action to fall to a more-accepted support-point with the possibility of closing the gap before higher prices are seen. Once prices begin to move higher investors should expect to see this stock make a sustained multiple expansion as it delivers growth quarter after quarter.
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