Williams-Sonoma Stock: Buy It and Never Let It Go

Key Points

• Williams-Sonoma's quality is centered on two things: brand and operational quality.
• Results in Q3 2024 outpaced the estimates, and guidance has been raised due to revenue and margin trends. 
• Capital returns are robust and include a healthy dividend and share buybacks. 

Williams-Sonoma NYSE: WSM offers everything an investor could want and more, making it a stock worthy of buy-and-hold status. Its quality is centered on the brand and operations, which CEO Laura Alber stewards. The results of her tenure include growth, operational improvement, market share gain, increased brand loyalty, and robust cash flow, allowing for sustained re-investment in the business while maintaining a fortress balance sheet and a healthy capital return.

Regarding capital returns, the payment from Williams-Sonoma is about as good as it gets, including an attractive dividend and count-reducing share buybacks.

Among the FQ3 earnings report highlights is a $5 billion increase in the existing authorization, worth about 30% of the pre-release market cap and instrumental in the market's response. The market surged more than 20% to near-record highs and will likely trend higher over the next year. Other highlights include noteworthy mentions of revenue and earnings trends and increased guidance, likely to be cautious given the trends. 

Williams-Sonoma Has Beat-and-Raise Quarter, Widens Margin

Williams-Sonoma had a solid quarter, revealing the resilience of its consumer base and the impact of Ms. Alber’s work over the past few years. The company’s revenue is contracting on lower comps due to headwinds and the post-COVID letdown. Still, the $1.8 billion is down only 2.7% and outpaced the consensus estimate reported by MarketBeat. Segmentally, most segments' revenue was down, with Pottery Barn leading at 7.5%. West Elm fell 3.5%, and the core Williams-Sonoma brand only 0.1%. Pottery Barn Kids, a source of persistent strength, grew by 3.8%. 

Margin news is even better. The company widened its gross margin on price realization, lower cost of goods, and operational improvements. The merchandise margin improved by 130 bps, and the supply chain improved by 100, driving a 230-based increase in the gross margin. Increased SG&A offset the gain to a degree, but not completely. The operating margin widened by 80 basis points to 17.8%, above the high end of the long-term target range. The critical detail is that the adjusted EPS of $1.96 outpaced the consensus by $0.19 or nearly 1100 basis points and grew 7.1% compared to the top-line contraction. 

The guidance is icing on the investment cake. The company raised its revenue and margin guidance for the year because of revenue and margin trends. The company expects revenue to contract only 3% to 1.5%, raising the low end of the range by 100 bps and for a margin of 17.8% to 18.2%, up 40 basis points from the previous guide. 

Williams-Sonoma Has Cash Flow and a Balance Sheet to Be Envious Of

Williams-Sonoma has cash flow and a balance sheet any company would envy. The quarterly and YTD cash flow allowed the company to increase its cash position compared to last year while returning more than $600 million to investors. The capital return includes $73 million in dividends and $533 million in buybacks, reducing the count by 2% for the quarter.

The pace of buybacks is expected to continue robustly as the year progresses, and in 2025, nothing on the balance sheet suggests otherwise. Details show cash, inventory, current, and total assets rising, liability and debt relatively flat, leverage low with total liability about 1.6x equity and equity rising. Shareholder equity increased by 5%. 

The price action in WSM stock is robust in the premarket session following the earnings release. The market is up more than 20%, showing robust support at the bottom of a trading range and the potential to set new highs.

The critical resistance is near $175 and will likely be broken soon. A move above $175 would signal a continuation of the trend begun in 2023 and likely take the market up to the $200 level, as indicated by the technical projections.