Williams-Sonoma Keeps On Winning

A Game-Changing Year For Williams-Sonoma

Williams-Sonoma NYSE: WSM may be one of the less visible winners of the pandemic but it is well-deserving of its top placement. The company's efforts to establish its brands and build out its e-commerce empire before the pandemic help to position it for the post-pandemic world. Over the past year, the company's growth has accelerated to double-digits and it looks like the growth is accelerating again in fiscal 2021. In our view, William-Sonoma is not only a great play on retail it's also a great play on e-commerce as well as the reopening and a perfect stock for dividend growth investors.

A Blowout Quarter Drives Williams-Sonoma Higher

Williams-Sonoma reported $1.75 billion in net consolidated revenue for the fiscal first quarter of 2021. This is down sequentially but seasonally expected, the important factor is the YOY growth topped 41%.  The real takeaway here is that year-over-year growth accelerated from the previous quarter, beat the consensus by 1400 basis points, and suggests better-than-expected results for the entire year.  Revenue strength was well supported by e-commerce, the company says engagement along e-commerce channels grew by double-digits and drove a significant increase in revenue per customer.

On a system-wide basis, comp-brand sales increased by 40.4% and nearly double the consensus. The core Williams-Sonoma brand gained 35% and it was led by Pottery Barn and West Elm which rose 41.3% and 50.9% respectively. As we move down the report the details only get better, the revenue gains helped the company leverage both the gross and the operating margin. The non-GAAP gross margin widened by 850 basis points while the operating margin widened by 950 basis points. The margin gains were seen on the bottom line too, driving GAAP EPS to $2.90 and non-GAAP EPS to $2.93 which both beat the consensus. The GAAP EPS beat by a dollar while the non-GAAP EPS beat by  $1.08.

As for the guidance, the company is expecting low double-digit to mid-teen net revenue growth and year-over-year adjusted operating margin expansion above the previously forecasted range. This guidance is well above the analyst consensus estimates and should drive a round of ratings upgrades and price target hikes in the coming weeks.

“As a result, we are raising our full-year outlook from mid-to-high single-digit revenue growth to the low-double-digit to mid-teen revenue growth and year-over-year operating margin expansion. We believe our business is uniquely positioned to gain market share given our growth strategies and our three key differentiators: Our in‐house design; Our digital-first channel strategy; and Our values. These differentiators are more relevant than ever with our customers and set us apart from our competition,” Says CEO Laura Alber.

Williams-Sonoma Is A Value For Dividend Growth Investors

Trading at only 17X this year's and next year's consensus earnings estimate, and with results so strong, this stock is a value relative to the broad market and virtually all of its e-commerce peers. The 1.38% dividend yield isn’t much to brag about but it is incredibly safe. The company's payout ratio is running below 25% and the balance sheet is a fortress. Based on that and the earnings outlook we expect the company to sustain many more years of future dividend increases. 

The Five-Year CAGR is also not much to brag about, only 8%, but the company has been aggressively increasing the payout over the past two years. Over the last year, the company has made two dividend increases worth almost 25% so we expect future dividend increases will also be aggressive.

The Technical Outlook: William-Sonoma Is Ready To Move Higher

Shares of Williams-Sonoma have been in consolidation since mid-march. Now, after the Q1 results, shares surged more than 2% in the pre-market and appear ready to continue moving higher.  In our opinion, any intraday weakness should be viewed as a buying opportunity. There will probably be some resistance at the  $180 and  $190 levels but we don't expect that to last long. Once the stock moves past 190 we expect to see it set a new all-time high above $200 and continue moving higher into the end of the year.