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Williams-Sonoma Inc WSM

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Economic Moat

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Raising Narrow-Moat Williams-Sonoma Fair Value to $195 as Mix Shift Improves Profitability

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We are lifting our fair value estimate for narrow-moat Williams-Sonoma to $195 from $152 per share to account for the firm’s opportunity to capture structurally higher operating margins over the long term. Admittedly, we previously underestimated the growth opportunities stemming from the business-to-business, marketplace, and franchise revenue streams, lines that tend to have better profit margins than the traditional brick-and-mortar furniture and home furnishing business. Additionally, given management’s outlook for West Elm to represent $3 billion, Pottery Barn $5 billion, and international $700 million in sales by 2024, our $8.9 billion 2024 sales forecast was light, particularly since management sees a $2 billion opportunity in B2B over time (with sales tracking to around $700 million in 2021). While we see some risk surrounding the return to spending in other discretionary categories as COVID-19 subsides, we think Williams-Sonoma has mitigated some of this risk by entering white-space categories like B2B for growth that can offset intermittent softness in certain lines.

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Company Profile

Business Description

With a wide retail and direct-to-consumer presence, Williams-Sonoma is a leader in the $112 billion domestic home furnishings category, focused on expanding its exposure in the B2B, marketplace, and franchise areas. Namesake Williams-Sonoma (195 stores) offers high-end cooking essentials, while Pottery Barn (196) provides casual home accessories. Brand extensions include Pottery Barn Kids (57) and PBteen. West Elm (123) is an emerging concept for young professionals, and Rejuvenation (10) offers lighting and house parts. Williams-Sonoma also has a business-to-business team that supports projects that range from residential to large-scale commercial.

Contact
3250 Van Ness Avenue
San Francisco, CA, 94109
T +1 415 421-7900
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings Jul 31, 2021
Fiscal Year End Jan 31, 2022
Stock Type Cyclical
Employees 21,000

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