Williams-Sonoma (NYSE: WSM) shares surged by 35% in March, as per data from S&P Global Market Intelligence. The company announced stronger-than-anticipated results for the fourth quarter of 2023, coupled with optimistic guidance for 2024 provided by management.
A resilient business model
Williams-Sonoma, renowned for its upscale kitchen items and housewares sold under prominent brands like Williams-Sonoma, Pottery Barn, and West Elm, caters to a affluent clientele known for their resilience during economic shifts and willingness to pay full prices.
Despite this clientele’s stability, the company is not immune to inflationary pressures. While initially outperforming other housewares firms, it is currently feeling the impact of inflation. Fiscal fourth-quarter sales, ending on Jan. 28, witnessed a 6.8% decline from the previous year, with full-year sales down by 9.9%. However, due to a high rate of full-price sales, gross margin expanded for both the quarter and the year, with a robust operating margin of 20.1% in the fourth quarter. Earnings per share (EPS) increased from $5.35 to $5.53 year-over-year, indicating a strong finish to the year.
A deeper analysis of the brand breakdown reveals that Pottery Barn experienced a 5.8% increase in sales, while Pottery Barn Kids saw a 4% rise. Conversely, Williams-Sonoma sales declined by 2.5%, and West Elm sales dropped by 10.7%. West Elm, being the most focused on mass-market shopping among the brands, faces reduced spending on costly items by its clientele.
Investors responded positively to the results, which exceeded expectations. Despite management’s guidance for a 10% to 12% sales decrease in 2023, the company achieved a 16.4% operating margin, aligning with the higher end of its target range. Looking ahead to 2024, management anticipates flat sales growth, with an anticipated expansion of operating margin to 16.5% to 16.8%.
Williams-Sonoma is a forever stock
Following its impressive report, Williams-Sonoma significantly raised its dividend by 26% to $1.13 quarterly, resulting in a yield of 1.46% at the current price, aligning with the S&P 500 average.
The stock witnessed a surge in response to the announcement, although it had already been climbing beforehand, accumulating over a 50% increase in value since the beginning of the year. With a current price-to-earnings ratio of 21, the stock is notably more expensive than usual but remains at a reasonably fair valuation.
While this elevated valuation may suggest potential downward movement to align with historical levels, long-term investors can remain confident in Williams-Sonoma’s ability to generate value for shareholders.
