Williams-Sonoma, Inc. (WSM) is an omnichannel specialty retailer offering a broad range of home goods, such as cooking, dining, and entertaining products.
The company is on the right side of inflation. Recently, the home goods retailer hiked its dividend by 20% to 0.71 per share.
This could help protect investor income from inflation, which has been running at around 5% in recent months. I am neutral on the stock.
On August 25, the company’s board of directors authorized a new $1.25-billion stock repurchase, on top of the approximately $560 million already in effect under the previous stock-repurchase authorization.
“Our decisions to increase our quarterly dividend again and to approve a new $1.25-billion share buyback authorization reflect the strength of our business and financial position, and our commitment to maximizing returns for our shareholders,” said Laura Alber, Williams-Sonoma president and CEO. “Our strong performance reinforces the sustainable power of our key differentiators: our in-house design, our digital-first channel strategy and our values.
“Combined with our winning positioning in a growing but fragmented industry, and our incremental growth initiatives, we are more confident than ever in our ability to deliver outsized returns into the future.”
Strong Q2 Performance
WSM’s dividend hike, and new stock-repurchase program followed the reporting of strong Q2 financial results. The San Francisco-based home goods company reported a 30.7% growth in revenue, distributed almost evenly across all brands and channels, including e-commerce. In addition, comparable brand revenue grew by 29.8%.
Meanwhile, the company reported GAAP and non-GAAP gross margins of 44.1%, up 710 bps from last year. They have been pushed upward by higher year-over-year merchandise margins and occupancy leverage of approximately 210bps.
Riding Home Sales, Ultra-Low Interest Rates
Williams-Sonoma products have fared relatively well during the pandemic, as household income stayed high, thanks to generous government subsidies, low-interest rates, and a shift in consumer spending from services to goods.
In addition, demand for home goods has stayed strong because of robust home sales. People usually spend heavily on buying home goods when moving to new homes.
Still, the 13 Wall Street analysts that follow the stock are skeptical about the ability of the company to continue its robust performance as the economy re-opens.
As a result, they rate Williams-Sonoma stock as a Hold, with a high forecast of $241 and a low forecast of $141. The average WMS price target of $191.38 represents 6.5% upside from current trading levels.
TipRanks gives the company a Smart Score of 9 out of 10, citing decreased hedge fund activity, and positive technicals.
Summary and Conclusions
Williams-Sonoma seems to be doing everything right to enhance shareholder value and help investors beat inflation.
It delivered strong Q2 results, and hiked its dividend and stock repurchase program. Nonetheless, the analyst community sees very little room for further gains in its stock over the next 12 months.
Disclosure: At the time of publication, Panos Mourdoukoutas did not have a position in any of the securities mentioned in this article
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