Williams-Sonoma (WSM) Rises 38.5% YTD: What's Driving It?
Williams-Sonoma, Inc. WSM is experiencing substantial growth in e-commerce and the Business-to-Business (B2B) segment, which is positively impacting its performance. Furthermore, its efforts to expand retail operations and diversify its product portfolio are showing promising results.
Earnings estimate for fiscal 2023 has moved up to $13.97 per share from $13.41 in the past 60 days. Despite the macroeconomic uncertainties and supply-related risks, the stock portrays a positive trend, indicating robust fundamentals and elevating the expectation of ongoing outperformance in the near term. Its earnings topped the Zacks Consensus Estimate in 12 of the trailing 13 quarters and missed once.
This multi-channel specialty retailer of premium quality home products has gained 38.5% so far this year compared with the Zacks Retail - Home Furnishings industry’s 18.4% growth and the Zacks Retail-Wholesale sector’s increase of 11.7%.
Williams-Sonoma — a Zacks Rank #1 (Strong Buy) stock — has a favorable VGM Score of B. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 or 2 (Buy), offer the best investment opportunities to investors.
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Let’s delve into the major driving factors.
Focus on E-Commerce: Williams-Sonoma stands as one of the United States' foremost e-commerce retailers, having consistently maintained its position as one of the most profitable e-commerce enterprises. In the second quarter of fiscal 2023, WSM reaped the rewards of its recent e-commerce website overhaul, witnessing favorable results. Additionally, the company is gearing up to launch its Wedding Registry service in Canada in August. The Mexican market has shown strength, attributed to WSM's effective provision of design services and a strengthened inventory position, all contributing to its remarkable e-commerce growth.
Williams-Sonoma's innovation extends to investing in the merchandising of its brands, efficient catalog distributions, and digital marketing, all of which bolster revenues derived from the e-commerce channel. In terms of a long-term perspective, WSM envisions the industry continuing its shift from retail to online. E-commerce penetration has been on the rise, supported by its in-house tech platform, a program of rapid experimentation, content-rich online experiences, and effective marketing strategies. Currently, WSM's e-commerce penetration stands at around 66%, and the company expects this figure to gradually increase to 70% over time.
Focus on Marketing & Digitalization: Its digital-first but not digital-only channel strategy provides a competitive edge, scaling the business into the future compared to retail and marketplace-only players. In the digital channels, it has been acquiring new customers at record rates the whole year, and customer retention metrics continue to improve among new customers. The company’s initiatives in e-commerce and real estate optimization strategies have been driving its channel mix shift.
Focus on B2B: WSM’s successful B2B strategy allows it to capture market share in the fragmented $80 billion market. The B2B operates in two formats, trade and contract. The company has an increased pipeline of project bids for fiscal 2023 compared with the previous year, indicating promising opportunities for growth.
The B2B operates in two formats, trade and contract. Despite a 5% year-over-year decline in overall business in second-quarter fiscal 2023, the company witnessed 23% sequential growth in its contract business during the quarter. WSM secured several contracts across various industries, including partnerships with Sony in the entertainment sector, the San Antonio Spurs training facility, and multiple properties under renowned brands like The Montaje, The Four Seasons, Weston, Hilton and Hyatt. While the slowdown in the housing market impacted the trade business, WSM is optimistic about its long-term prospects, observing recent improvements in this segment.
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