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Williams-Sonoma to Ride on E-Commerce Amid Coronavirus Woes

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Williams-Sonoma, Inc.’s (WSM - Free Report) business has been benefiting from solid e-commerce growth, and strong West ELM and emerging businesses. Also, its focus on innovation, marketing and digitalization techniques are commendable.

This multi-channel specialty retailer recently reported strong fiscal 2019 results. Non GAAP earnings grew 8.5% and revenues were up 4% year over year. West Elm — its biggest growth catalyst — continues to add to the strength of Pottery Barn brands. Also, cross-brand initiatives such as The Key, Business-to-Business and in-home Design Crew are expected to become important growth drivers.

However, coronavirus fears are grappling its growth, as store closures in most of the affected countries will weigh on margins in the near term. Notably, the company has suspended its full-year fiscal 2020 guidance.

Let’s see how things are shaping for this Zacks Rank #3 (Hold) company’s upcoming results. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

E-Commerce Business & Strategic Initiatives Bodes Well

Williams-Sonoma 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. The company is expected to generate strong revenues from the e-commerce channel, as it focuses on re-platforming mobile sites to progressive web app technology, streamlining checkout process, and implementing the next-generation of machine learning, on-site search as well as personalization experience.

Williams-Sonoma is a highly customer-centric company and focuses on enhancing customer experience through technological innovation and operational improvement. Also, continuous technological and new products innovation helps it enhance customer engagement. Notably, its 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 2020 and beyond.

Its innovative efforts have helped the company to drive e-commerce growth. E-commerce revenues touched an all-time high of more than 56% of total revenues in fiscal 2019.

Its focus on West Elm and emerging brands, namely Rejuvenation and Mark and Graham, is raising hopes. Its 10th consecutive year of double-digit growth and another year of strong comps growth of 14.4% in fiscal 2019 are commendable.

Novel Coronavirus, a Potent Threat

Despite reporting better-than-expected results over the last few quarters, the company’s retail business is witnessing store closures due to COVID-19 spread. Williams-Sonoma and other industry players like At Home Group Inc. (HOME - Free Report) , RH (RH - Free Report) and The Lovesac Company (LOVE - Free Report) have announced temporarily close of stores to contain the spread of the virus. Shares of the company have also declined 45.7% in year-to-date period compared with industry's 55.1% fall.

The company is planning to extend closures across the world. Given the unpredictable effects of coronavirus on consumer behavior and economic activity in general, the company decided to temporarily suspend its full-year guidance.

Notably, it expects near-term softness as overall consumer demand is likely to decline. Also, it is suspending all capital expenditures that are non business-critical and is substantially reducing inventory level for the year.

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