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Williams-Sonoma, Inc. WSM is riding on continuous enhancement of the e-commerce channel, optimization of supply chain, investment in merchandising of brands and digital marketing. Consequently, shares of Williams-Sonoma have gained 103.6% over the past year compared with its industry’s 57.1% rally.
The price performance was backed by a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in the trailing 13 quarters. Earnings estimates for fiscal 2021 have moved 18.5% upward over the past 30 days. This signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
Major Growth Drivers
Solid Long-Term Guidance: Williams-Sonoma is optimistic about business strength, and anticipates recovery in retail traffic and inventory levels during fiscal 2021. For fiscal 2021, the company not only expects revenues to grow in mid-to-high single digits but also anticipates operating margin expansion on a year-over-year basis. On a more encouraging note, the company projects revenue acceleration toward $10 billion over the long term and expects operating margin to expand to 15% over the next five years.
Strong E-commerce Penetration: Williams-Sonoma, which shares industry space with RH RH, At Home Group Inc. HOME and Tempur Sealy International, Inc. TPX, is one of the largest e-commerce retailers in the United States and has historically been one of the most profitable e-commerce companies. The company is seeing higher-than-expected e-commerce traffic and robust demand for the e-commerce business. E-commerce penetration accounted for 70% of total revenues for fourth-quarter fiscal 2020, buoyed by content-rich online experience and marketing strategies. Again, during the quarter, the company witnessed solid ecommerce sales growth of 47.3%. This highlights the digital-first nature of Williams-Sonoma’s business. It is expected to generate more revenues from the e-commerce channel as it focuses to re-platform mobile sites to progressive web app technology, streamline checkout process and implement the next-generation of machine learning, on-site search as well as personalization experience.
Focus on Marketing & Digitalization: Williams-Sonoma is the market leader in-pure-play digital retailer in home furnishing and one of the top 25 retailers in the United States across all industries. Williams-Sonoma continues to acquire new customers through digital channels. The digital-first channel strategy will drive profitable market share gains, thereby bringing its closer to its target of $10 billion in revenues and 15% operating margins in the next five years. The company is focused on enhancing customer experience through technology innovation and operational improvement. In order to drive brand awareness and increase customer engagement as well as cross-selling opportunities, the company channelized its advertising spend toward social media campaigns and cross-brand initiatives. Cross-brand initiatives such as The Key, Design Crew Room Planner and The One Registry are expected to be incremental growth drivers for all its brands in fiscal 2021 and beyond. Higher digital marketing is driving incremental customer count. Meanwhile, its newest division, Williams-Sonoma Inc. Business-to-Business, has made significant progress during the year.
Superior ROE: Williams-Sonoma has a very strong return on equity (ROE), which is indicative of its growth potential. The company’s ROE currently stands at 51%. This compares favorably with ROE of 20.5% for the industry it belongs to. This indicates Williams-Sonoma’s ability of using shareholders’ funds and its potential to generate profit with minimum utilization of capital.
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