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Bull of the Day: Williams-Sonoma (WSM)

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Williams-Sonoma, Inc. (WSM - Free Report) has been one of the COVID pandemic winners. This Zacks Rank #1 (Strong Buy) saw online sales soar in its fiscal second quarter as consumer focus turned to food and the home.

Williams-Sonoma is a specialty retailer which makes products for the home. It is more than just its namesake, Williams-Sonoma. It also owns several well known furniture brands including Pottery Barn, Pottery Barn Kids, West Elm, Pottery Barn Teen, Williams Sonoma Home, Rejuvenation and Mark and Graham.

It sells online, through catalogs and its global retail stores.

Williams-Sonoma operates in the US, Puerto Rico, Canada and the United Kingdom and has unaffiliated franchisees which operate stores in the Middle East, the Philippines, Mexico and South Korea.

A Big Beat in Fiscal Q2

On Aug 26, Williams-Sonoma reported its fiscal second quarter 2020 results and blew by the Zacks Consensus by $0.81. Earnings were $1.80 versus the consensus of $0.99.

That's a beat of 81%.

It has an impressive earnings surprise track record. It hasn't missed since all the way back in 2016.

The quarter encompassed parts of the pandemic lock down period in May 2020 so digital sales soared even as stores began to reopen throughout the quarter.

Net revenue jumped 8.8% to $1.491 billion as e-commerce revenue growth rose to 46%.

E-commerce penetration saw an all-time high of almost 76% of the company's total revenue in the quarter as consumers shifted to buying online.

Brand revenue saw growth of 10.5% with Williams-Sonoma leading the way with a record 29.4%. Pottery Barn jumped 8.15 and Pottery Barn Kids and Teen was up 4.8%.

West Elm, it's biggest growth brand, was up 7% but that was on top of a strong growth comp in Q2 2019 of 17.5%. That means West Elm saw brand revenue growth of nearly 25% in just 2 years.

Analysts are Bullish on the Full Year

Williams-Sonoma did not supply any guidance for fiscal 2020 due to the uncertainty with the pandemic.

However, it did re-affirm its long-term financial guidance of total net revenue growth of mid to high single digits.

The analysts are bullish on the year, however.

Pandemic trends of focus on the home are not expected to go away any time soon.

10 estimates have been revised higher over the last month for fiscal 2020, pushing the Zacks Consensus up to $6.18 from $4.61. That's earnings growth of 27.7% as the company made just $4.84 last year.

With the strong growth, it will be hard for companies to continue to comp above it so analysts see a slight decline in fiscal 2021 earnings, down 3.6% to $5.95.

Shares Near 5-Year Highs

The home is hot, and so are the home-related stocks like Williams-Sonoma.

Shares have surged 152% over the last 6 months to 5-year highs.

But they still have attractive valuations, with a forward P/E of 14.8.

Williams-Sonoma has $948 million in cash on hand and it's shareholder friendly, as it's still paying a dividend, which is currently yielding 2.1%.

It's not the only Zacks Rank #1 (Strong Buy) in the furniture and home products category. RH (RH - Free Report) and La-Z-Boy, Inc. (LZB - Free Report) are also Zacks Rank #1 (Strong Buy) stocks.

If you're looking for a way to play the focus on the home, Williams-Sonoma is one to keep on your short list.

[In full disclosure, the author of this article owns shares of WSM and RH in her personal portfolio.]

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