What's Cooking at Williams-Sonoma?

11/29/2019 5:00 am EST

Focus: CONSUMER

Chris Quigley

Contributing Editor, The Prudent Speculator

Luxury home goods retailer Williams-Sonoma (WSM) earned $1.02 per share in fiscal Q3 2020 (vs. $1.01 est.). The firm had revenue of $1.44 billion, versus the $1.42 billion estimate, observes Chris Quigley, value investing expert and contributing editor to The Prudent Speculator.

The shares recently tumbled, even as the company raised the low end of its full-year guidance, which now stands at $4.65 to $4.80 of EPS (vs. $4.60 to $4.80 previously) and revenue between $5.77 billion and $5.90 billion (vs. $5.74 billion and $5.90 billion previously).

CEO Laura Alber stated, “While we continue to innovate the experience in our stores, our revenue growth was led by e-commerce at 9%, reaching almost 57% of revenues. Highlights from the brands include West Elm, which led our performance with a 14.1% comp on top of an 8.3% comp last year.”

Ms. Alber concluded, “We are confident that we will deliver great service to our customers this holiday season and lead as an example of sustainability in our industry. We believe we are well equipped for an exceptional 2019 and we are ready for what’s to come in 2020.”

Williams-Somonma posted solid earnings and improved guidance, so it was a bit surprising to see shares hit hard for what view as no transgression at all. The stock has gained more than 35% this year, handsomely outpacing the S&P 500 Retail Industry Group’s 21% return.

Management said that the company’s mitigation strategies for the tariffs on Chinese goods have been paying off, and forward guidance includes no expectation that the tariffs will be repealed. Therefore, we think there would be additional upside if the tariffs were trimmed or eliminated.

We think that WSM remains a compelling value proposition (with metrics like a 14 times forward P/E ratio, a 2.9% yield and a 0.9 times P/S ratio) with strong growth prospects.

We continue to like WSM’s investments in technology, collaborations with other brands, in-store and in-home design consultations and sizable online presence. Our Target Price has been bumped up to $86.

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