Williams-Sonoma (NYSE:WSM) stock is soaring higher after the company announced another exceptional quarter. By every metric, the specialty retailer delivered numbers that demonstrated the company’s strength during the pandemic. And that strength is the balance that it has achieved between e-commerce and brick-and-mortar.
Williams-Sonoma encompasses many premium brands such as Pottery Barn and Pottery Barn Kids. These brands first became popular along with Martha Stewart. And they lost a little luster as the housing market imploded. Or did they? The company maintains a relatively small brick-and-mortar footprint with just 614 stores worldwide (over 60 countries) as of Feb. 2020.
However, that 614 number has stayed virtually the same over the past 10 years. And one reason for that is that the company has been focusing on e-commerce long before e-commerce was cool.
But if you owned WSM stock in the four years prior to 2020, you weren’t getting any cool points. In fact, you would have been sitting on a 27% gain. Not bad for four years. But if you pull that back just one year to the beginning of 2019, you would have only had a dividend to show for your investment.
I bring this up because the gains that WSM stock has made in the last two years and in 2020 in particular illustrate why the narrative of these companies matters. Williams-Sonoma was making a concerted push into e-commerce a long time ago. And now, shareholders are finally being rewarded for their patience.
E-Commerce is Exploding
No really, it’s exploding. According to Adobe Analytics, e-commerce sales will total over one trillion dollars per year in 2022. The pandemic has accelerated a trend that was already in place. And even with vaccines rolling out and the likelihood of herd immunity being achieved by late spring, Americans will continue to shop online.
While other retailers may be scrambling to embrace this new normal, Williams-Sonoma is already there. In its earnings report that they delivered after the market closed on March 17, the company reported that e-commerce revenues remained stable at around 70%. This was on top of comparable brand revenue growth of 26% across its entire brand portfolio.
In 2020, CEO Laura Alber commented on the strength of the company’s e-commerce sales: "Over the past five months, we have seen an acceleration in online sales, and with our powerful digital platform and trusted brands, we are maximizing the shift and driving e-commerce sales to new levels."
The Housing Market Continues to Show Strength
Another likely catalyst for Williams-Sonoma is the strength of the housing market. If the company got a lift from people renovating their homes last year, it may benefit as new homeowners furnish and decorate their new spaces.
An article by the consulting firm McKinsey in 2020 noted that consumers expect to continue spending more time at home and on in-home activities even if they lived in an area that is less restricted. And part of that shopping experience includes a convenience and seamless e-commerce experience such as Williams-Sonoma is already providing.
Have Realistic Expectations About WSM Stock
Don’t hate me for saying that you’re unlikely to get 437% in share price growth as WSM investors have enjoyed over the last 12 months. Anything’s possible I suppose, but it seems likely that more discretionary dollars will shift into travel and entertainment.
Analysts seem to hold a similar opinion as they have WSM stock rated as a consensus hold with a price target that suggests the stock may drop by over 20% from its price at the time of this writing.
However, another exciting development came out of Williams-Sonoma’s earnings report. Actually, the news came out as a separate press release. The company is increasing its dividend for what will be the ninth consecutive year. That alone is commendable. But the company is increasing the dividend by 11% while at the same time announcing a $1 billion stock buyback plan.
Perhaps some of this is being done with the expectation that shareholders may not see the same stock price growth next year. Fair enough, but the company is still prioritizing its shareholders and that’s laudable.
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