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Williams-Sonoma Inc WSM

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Williams-Sonoma Posts Another Solid Quarter, but Fails To Escape Supply Chain Wrath; Shares Fairly Valued

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

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).

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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 (194 stores) offers high-end cooking essentials, while Pottery Barn (195) provides casual home accessories. Brand extensions include Pottery Barn Kids (57) and PBteen. West Elm (121) 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.

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