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Williams-Sonoma Is Breaking Out

Posted on Friday, May 29th, 2020 by Thomas Hughes

Williams-Sonoma Is Breaking Out

One Of The Best Positioned Stocks In Retail Today

There is a clear trend in the market focused on retail spending and specifically the pandemically-boosted stocks I’ve grown to love. Among these trends are consumer staples manufacturers, consumer staples retailers, home improvement stocks, and discounters. The discounters, like Walmart (WMT), Costco (COST), and the dollar stores, have been a primary focus and for one good reason. The pandemic put a lot of people out of work and pantry-loading is expensive so discount products/retailers are going to see the biggest gains.

But that isn’t necessarily true. Today’s report from Williams-Sonoma (WSM) provides clear evidence that discretionary-quality spending is still alive and well. And why not? The pandemic shut-down didn’t impact everyone the same way and those most affected, the lower-income segment, aren’t likely regular shoppers at Williams-Sonoma anyway. Those still working still face the impact of massive economic shut-downs and that includes staying home most of the time.

Speaking as a former chef and home culinarian, not everyone likes to buy their kitchen gadgetry at the discount store. There’s something to be said for a little quality in your products and that in itself underpins Williams-Sonoma’s success this quarter. I may not buy a pan or a dish very often, but when I do I am more likely to buy the exact item I need at a store like Williams-Sonoma than a maybe-so somewhere else. Anecdotal I know but there it is.

The Results Speak For Themselves

The Williams-Sonoma report is so good and packed full of good news it’s hard to know where to start, so I'll start at the top line. At the top line, revenue is flat from last year and beat the consensus by 1270 basis points. The top-line strength carried through to bottom-line delivering $0.45 in GAAP and $0.74 in Adj EPS. Both Adj and GAAP EPS blew past their consensus estimates.

What makes these figures so stunning is that ALL of Williams-Sonoma’s 616 stores were closed for more than half of the quarter. The company’s strength is shown 1) in the post-reopening rebound and 2) in the power of eCommerce. Total comps for the quarter came in at 2.6%, offset by COVID-related costs, and driven by a 31.2% increase in eCommerce/direct to consumer sales. More notably, the company’s CEO say’s eCommerce is growth is accelerating in the current quarter and aiding an expansion in market share.

“Our large e-commerce business had breakout comp growth in the second half of the quarter and continues to accelerate. Our teams maximized demand online, leaning into new and innovative ways to engage and serve our customers virtually. We gained market share with strong new customer growth in our DTC business, giving us even more confidence in the growth trajectory of our e-commerce business longer term,” says Laura Alber, President and Chief Executive Officer.

The Dividend, Safe But Don’t Pin Your Hopes On An Increase

The dividend at Williams-Sonoma is attractive and healthy but an increase may not be forthcoming. In terms of the yield, the company is paying about 2.5% at today’s prices and that is backed up by a history of growth. The caveat is the company opted not to increase the distribution last fall when it was expected. The upshot is the failure to increase can be attributed to the pandemic and today’s results belie the need for caution. There may in fact be an increase on the way but when it comes and how large it will be is largely dependent on how the reopening plays out.

The Technical Outlook: Breaking Out, A New All-Time Highs Is Likely

The technical picture for Willams-Sonoma is bullish. The stock made a quick correction and only been moving higher since hitting the bottom. Today’s news has the price breaking out of a multi-year trading range and positioned to retest the all-time high. It’s hard to appreciate this move on anything other than the monthly chart, a fact I think emphasizes the strength of the market. What we’re seeing is a strong, secular-grade bounce from solid support that will at least retest the previous high.

Williams-Sonoma Is Breaking Out

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