Williams-Sonoma (WSM) is one of the most admired retailers in the world. The company makes 90% of what it sells which allows for better profit margins as competitors can’t sell the same item for less. Since launching its websites in 2000 its grown sales at a 46% compounded annual growth rate, with the highest e-commerce % of any multi-channel retailer. It’s database has 57 million households, including half of the affluent households in America.
Williams-Sonoma is an Internet juggernaut, with 50% of its sales done online. West Elm has been the company’s shining star lately, and the mid-range contemporary furniture & accessories store posted 16% same store sales (SSS) last qtr. Pottery Barn, WSM’s more rustic looking furniture/accessories store, also did well with a 6% jump in SSS. Williams-Sonoma isn’t living up to the company name, posting flat SSS last qtr. Overall the company had respectable sales growth of 9% last qtr, that was partially hurt by West Coast port issues, which are also clipping profits. Last qtr the company had 9% profit growth but this could have been/should have been 23% profit growth were it not for costs due to the port issue.
Ten Year Chart
WSM took a nasty dive during the beat market of 2008-2009, but since then its been trending higher. The stock is currently 15% off its high set in August, and is flat year-to-date.
Profit growth the last 4 qtrs has been 17%, 10%, 0% and 9% (the last 2 qtrs were negatively affected by the West Coast port issues). Estimates show 17%, 11%, 25% and 14% profit growth coming the next 4 qtrs. The stock has a P/E of 22, which I feel is a little high considering the erratic qtrly growth.
Profit History
Investors could have gotten the stock for between 15 to 18 times earnings a couple of years back, and now have to pay 22x earnings. WSM has an expected long-term growth rate of 12% per year and pays a 2% dividend in addition to buying back stock. I feel this is a good company, but as 2008-2009 shows us WSM can be hurt by a weak economy. I feel 20x earnings is fair, and WSM is a little overvalued right now.
Sharek’s Take
Shares of Williams-Sonoma are on my radar for stocks to buy for the Conservative Portfolio. The company executes beautifully, but the stock is a little high now as it sells for 22x earnings even though profits are weak due to shipping issues on the west coast. Overall this company should be able to grow in the low double-digit to mid-teens rate in addition to paying a 2% dividend. To me WSM is worth 20x earnings, and that equates to $69 a share. WSM is on my watch list.
View the One Year Chart here. View the Earnings Table here.
