Williams-Sonoma Inc WSM

We plan to lift our $195 fair value estimate for narrow-moat Williams-Sonoma by a mid-single-digit rate after digesting its third-quarter results. In the period, sales grew 16%, to $2 billion, while total brand comps jumped 17%. On a two-year stack basis, comps are above 40% (same as the last two periods), with three brands reporting double-digit metrics (Pottery Barn at 16%, Williams-Sonoma at 17%, and West Elm at 22.5%). It remains evident that despite the economic reopening, the secular shift to working and entertaining at home has persisted, leading to robust demand and, in turn, cost leverage. The gross margin expanded 370 basis points to 43.7% (780 basis points over 2019) thanks to higher merchandise margins and occupancy leverage. This led to a 16.3% operating margin, another high water mark following last quarter’s 16.7% metric (the only time in the last decade the firm has posted 16%-plus profit margins).