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Williams-Sonoma (WSM) Up 112% in Past Year: More Room to Run?

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Williams-Sonoma, Inc. (WSM - Free Report) is poised to benefit from the continued enhancement of its e-commerce channel and optimization of the supply chain. Also, the transformation of the retail fleet by investing in new and remodeled stores is expected to drive growth.

Shares of Williams-Sonoma have gained 112% over the past year compared with Zacks Retail - Home Furnishings industry’s 73.2% rally.

The price performance was backed by a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in the trailing 15 quarters. Earnings estimates for fiscal 2021 have moved 0.8% upward over the past 30 days. This signifies bullish analyst sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.

Major Growth Drivers

Robust E-commerce Space: Historically, Williams-Sonoma has been the most profitable e-commerce company and is one of the largest e-commerce retailers in the United States. The company has been witnessing higher-than-expected e-commerce traffic and robust demand from the e-commerce business in Canada. The company has a history of driving market share gains, supported by strong e-commerce websites, direct mail catalogs and retail stores along with shipping fees received for the delivery of merchandise. Moreover, continuous innovation has helped the company drive e-commerce growth.

E-commerce penetration accounted for 65% of total revenues for second-quarter fiscal 2021, buoyed by its in-house tech platform, rapid experimentation program, content-rich online experience and marketing strategies. The company is on track to invest nearly $250 million in the business in fiscal 2021, focusing on technology and supply chain initiatives that primarily support e-commerce growth. This highlights the digital-first nature of Williams-Sonoma’s business. Going forward, the company aims to focus more on growth drivers that include West Elm, Business-to-Business offering, its emerging brands Williams-Sonoma Home, Rejuvenation, and Mark and Graham, and its largest brand Pottery Barn and namesake brand Williams-Sonoma. Williams-Sonoma currently anticipates revenue acceleration to $10 billion over the next four years (a year earlier than the previous projection).

Digitalization Efforts Driving Sales: Williams-Sonoma is the market leader in-pure-play digital retailer in home furnishing and one of the top 25 retailers in the United States across all industries. Williams-Sonoma continues to acquire new customers through digital channels. The digital-first channel strategy will drive profitable market share gains, thereby bringing its closer to its target of $10 billion in revenues and operating margin growth in the next four years.

In a bid to expand its brand and increase its customer engagement as well as cross-selling opportunities, the company shifted its advertising spend toward social media campaigns and cross-brand initiatives. The company is focused on enhancing customer experience through technology innovation and operational improvement. In order to drive brand awareness and increase customer engagement as well as cross-selling opportunities, the company channelized its advertising spend toward social media campaigns and cross-brand initiatives. Cross-brand initiatives such as The Key, Design Crew Room Planner and The One Registry are expected to be incremental growth drivers for all its brands in fiscal 2021 and beyond. Higher digital marketing is driving incremental customer count. Meanwhile, its newest division, Williams-Sonoma Inc. Business-to-Business, has made significant progress during the year.

Upbeat View: Williams-Sonoma is optimistic about business strength. For fiscal 2021, Williams-Sonoma now expects revenues to witness high-teens to low-20s net revenue growth versus low double-digit to mid-teen improvement expected earlier. Furthermore, the company now projects revenue acceleration to $10 billion over the next four years (a year earlier than the previous projection).

ROE Reflects Strength: Williams-Sonoma has a solid return on equity (ROE), which is indicative of its growth potential. The company’s ROE currently stands at 65.9%. This compares favorably with ROE of 34.3% for the industry it belongs to. This indicates Williams-Sonoma’s ability to use shareholders’ funds and its potential to generate profit with minimum capital utilization.


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