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Williams-Sonoma (WSM) Rides on E-Commerce Growth Amid High Cost
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Williams-Sonoma, Inc. (WSM - Free Report) is benefiting from the solid growth in e-commerce and the Business-to-Business (B2B) segment. Also, its retail and product portfolio expansion initiatives bode well.
Williams-Sonoma’s earnings estimates for fiscal 2023 have moved north to $13.49 per share from $13.43 per share over the past 60 days. This depicts analysts' optimism about the company’s growth prospects. Its earnings topped the Zacks Consensus Estimates in 13 of the trailing 14 quarters and missed once. Revenues beat estimates in 11 of the trailing 14 quarters.
However, this multi-channel specialty retailer of premium quality home products is facing headwinds in the form of supply-chain inefficiencies, increased shipping and freight costs along with lower consumer spending given the uncertain macroeconomic environment.
Image Source: Zacks Investment Research
Shares of WSM have gained 9.3% in the year-to-date period, underperforming the Zacks Retail - Home Furnishings industry’s growth of 20.2%.
Let us delve deeper.
Factors Boosting Growth
Williams-Sonoma is one of the largest e-commerce retailers in the United States. Its innovative efforts have helped drive e-commerce growth. The company’s investment in the merchandising of its brands, efficient catalog circulations and digital marketing boosts revenues from the e-commerce channel. E-commerce penetration has been increasing, buoyed by its in-house tech platform, rapid experimentation program, content-rich online experience and marketing strategies. This provides WSM with a competitive edge over its peers and has helped it to become the world’s largest digital-first, design-led and sustainable home retailer.
The company remains on track to invest nearly $250 million in fiscal 2023 for the long-term growth of the business along with prioritizing technology and supply-chain initiatives that primarily support e-commerce growth.
WSM’s successful B2B strategy allows it to capture market share in the fragmented $80 billion market. The B2B operates in two formats, trade and contract. The company has an increased pipeline of project bids for fiscal 2023 compared to the previous year, indicating promising opportunities for growth.
Williams-Sonoma anticipates that B2B will continue to contribute positively to the quarterly performance. During first-quarter fiscal 2023, the company successfully launched B2B in Canada and is further planning to introduce its Canadian customers to rejuvenation, Mark and Graham, and Williams-Sonoma Home through the upcoming website launch.
Furthermore, Williams-Sonoma’s ongoing collaborations have helped it to widen its product offerings in the market. On Jun 22, 2023, WSM’s portfolio brands Pottery Barn Kids and Pottery Barn Teen (PB teen) collaborated with Rifle Paper Co. to launch an exclusive children’s home furnishing collection. Also, PB Teen’s largest dorm collection launch on Jun 15, which included vintage-inspired collaboration of floral dorm bedding and décor with the fashion brand, LoveShackFancy, added to the portfolio expansion. Further, the company is engaging in global retail expansion with a particular focus on the Indian market. In third-quarter fiscal 2023, the company is set to drive growth through retail expansion with the opening of the third West Elm store, the second Pottery Barn store and the first Pottery Barn Kids store.
Growth Hindering Factors
Williams-Sonoma’s performance is being impacted by supply-chain bottlenecks. Due to the supply issue across the world, the company witnessed short-term and long-term delays in the last few quarters. During the fiscal first quarter, as a percentage of net revenues, the cost of goods sold increased to 61.5%, compared with year ago-quarter’s reported figure of 56.2%. This rise can be attributed to higher input costs and increased expenses for ocean freight, detention and demurrage due to supply-chain disruptions and global inflation pressures.
WSM expects cost pressures to persist for the balance of fiscal 2023, primarily across the supply chain and demand patterns. These headwinds include incremental distribution centers, higher product and freight costs, and efforts to best serve its customers by delivering products as timely as possible.
Due to the weak macroeconomic condition, the demand for WSM’s products may witness a downward trend in the coming year. This may occur due to declining consumer spending given the economic uncertainties. In May 2023, consumer spending inched up a mere 0.1%, implying stagnation. The figure was lower than the downwardly revised April level (up 0.6%). The May figure was even lower than 0.8% reported in the prior-year period. This uncertainty is likely to affect WSM’s top-line growth in fiscal 2023.
Zacks Rank & Key Picks
Williams-Sonoma currently carries a Zacks Rank #3 (Hold).
BJRI has a trailing four-quarter earnings surprise of 93%, on average. Shares of the company have gained 49% in the past year. The Zacks Consensus Estimate for BJRI’s 2023 sales and earnings per share (EPS) suggests growth of 5.5% and 317.7%, respectively, from the year-ago period’s levels.
Shake Shack sports a Zacks Rank of 1. SHAK has a trailing four-quarter earnings surprise of 58.6%, on average. Shares of the company have surged 70.5% in the past year.
The Zacks Consensus Estimate for SHAK’s 2023 sales and EPS suggests growth of 21.5% and 148.4%, respectively, from the year-ago period’s levels.
Dave & Buster's Entertainment currently sports a Zacks Rank of 1. PLAY has a trailing four-quarter earnings surprise of 6.8%, on average. Shares of the company have gained 27.7% in the past year.
The consensus estimates for PLAY’s fiscal 2023 sales and EPS suggests growth of 16.9% and 28%, respectively, from the year-ago period’s levels.
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Williams-Sonoma (WSM) Rides on E-Commerce Growth Amid High Cost
Williams-Sonoma, Inc. (WSM - Free Report) is benefiting from the solid growth in e-commerce and the Business-to-Business (B2B) segment. Also, its retail and product portfolio expansion initiatives bode well.
Williams-Sonoma’s earnings estimates for fiscal 2023 have moved north to $13.49 per share from $13.43 per share over the past 60 days. This depicts analysts' optimism about the company’s growth prospects. Its earnings topped the Zacks Consensus Estimates in 13 of the trailing 14 quarters and missed once. Revenues beat estimates in 11 of the trailing 14 quarters.
However, this multi-channel specialty retailer of premium quality home products is facing headwinds in the form of supply-chain inefficiencies, increased shipping and freight costs along with lower consumer spending given the uncertain macroeconomic environment.
Image Source: Zacks Investment Research
Shares of WSM have gained 9.3% in the year-to-date period, underperforming the Zacks Retail - Home Furnishings industry’s growth of 20.2%.
Let us delve deeper.
Factors Boosting Growth
Williams-Sonoma is one of the largest e-commerce retailers in the United States. Its innovative efforts have helped drive e-commerce growth. The company’s investment in the merchandising of its brands, efficient catalog circulations and digital marketing boosts revenues from the e-commerce channel. E-commerce penetration has been increasing, buoyed by its in-house tech platform, rapid experimentation program, content-rich online experience and marketing strategies. This provides WSM with a competitive edge over its peers and has helped it to become the world’s largest digital-first, design-led and sustainable home retailer.
The company remains on track to invest nearly $250 million in fiscal 2023 for the long-term growth of the business along with prioritizing technology and supply-chain initiatives that primarily support e-commerce growth.
WSM’s successful B2B strategy allows it to capture market share in the fragmented $80 billion market. The B2B operates in two formats, trade and contract. The company has an increased pipeline of project bids for fiscal 2023 compared to the previous year, indicating promising opportunities for growth.
Williams-Sonoma anticipates that B2B will continue to contribute positively to the quarterly performance. During first-quarter fiscal 2023, the company successfully launched B2B in Canada and is further planning to introduce its Canadian customers to rejuvenation, Mark and Graham, and Williams-Sonoma Home through the upcoming website launch.
Furthermore, Williams-Sonoma’s ongoing collaborations have helped it to widen its product offerings in the market. On Jun 22, 2023, WSM’s portfolio brands Pottery Barn Kids and Pottery Barn Teen (PB teen) collaborated with Rifle Paper Co. to launch an exclusive children’s home furnishing collection. Also, PB Teen’s largest dorm collection launch on Jun 15, which included vintage-inspired collaboration of floral dorm bedding and décor with the fashion brand, LoveShackFancy, added to the portfolio expansion. Further, the company is engaging in global retail expansion with a particular focus on the Indian market. In third-quarter fiscal 2023, the company is set to drive growth through retail expansion with the opening of the third West Elm store, the second Pottery Barn store and the first Pottery Barn Kids store.
Growth Hindering Factors
Williams-Sonoma’s performance is being impacted by supply-chain bottlenecks. Due to the supply issue across the world, the company witnessed short-term and long-term delays in the last few quarters. During the fiscal first quarter, as a percentage of net revenues, the cost of goods sold increased to 61.5%, compared with year ago-quarter’s reported figure of 56.2%. This rise can be attributed to higher input costs and increased expenses for ocean freight, detention and demurrage due to supply-chain disruptions and global inflation pressures.
WSM expects cost pressures to persist for the balance of fiscal 2023, primarily across the supply chain and demand patterns. These headwinds include incremental distribution centers, higher product and freight costs, and efforts to best serve its customers by delivering products as timely as possible.
Due to the weak macroeconomic condition, the demand for WSM’s products may witness a downward trend in the coming year. This may occur due to declining consumer spending given the economic uncertainties. In May 2023, consumer spending inched up a mere 0.1%, implying stagnation. The figure was lower than the downwardly revised April level (up 0.6%). The May figure was even lower than 0.8% reported in the prior-year period. This uncertainty is likely to affect WSM’s top-line growth in fiscal 2023.
Zacks Rank & Key Picks
Williams-Sonoma currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Zacks Retail-Wholesale sector are BJ's Restaurants, Inc. (BJRI - Free Report) , Shake Shack Inc. (SHAK - Free Report) and Dave & Buster's Entertainment, Inc. (PLAY - Free Report) .
BJ's Restaurants currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BJRI has a trailing four-quarter earnings surprise of 93%, on average. Shares of the company have gained 49% in the past year. The Zacks Consensus Estimate for BJRI’s 2023 sales and earnings per share (EPS) suggests growth of 5.5% and 317.7%, respectively, from the year-ago period’s levels.
Shake Shack sports a Zacks Rank of 1. SHAK has a trailing four-quarter earnings surprise of 58.6%, on average. Shares of the company have surged 70.5% in the past year.
The Zacks Consensus Estimate for SHAK’s 2023 sales and EPS suggests growth of 21.5% and 148.4%, respectively, from the year-ago period’s levels.
Dave & Buster's Entertainment currently sports a Zacks Rank of 1. PLAY has a trailing four-quarter earnings surprise of 6.8%, on average. Shares of the company have gained 27.7% in the past year.
The consensus estimates for PLAY’s fiscal 2023 sales and EPS suggests growth of 16.9% and 28%, respectively, from the year-ago period’s levels.