Williams-Sonoma Keeps Performing (News) November 16, 1999

Williams-Sonoma Keeps Performing

By Dave Marino-Nachison (TMF Braden)
November 16, 1999

The growth story at classy home furnishings retailer Williams-Sonoma (NYSE: WSM) continued to unfold in typically impressive fashion, the company today announcing fiscal third-quarter (ended Oct. 31) results that seem to indicate a company on track for substantial 1999 earnings growth.

The third-quarter recap: A 9.6% rise in same-store sales powered revenue growth of more than 34% to $324 million. Retail sales rose nearly 24% thanks in part to a year-over-year difference of 32 new stores. The Pottery Barn furniture and accessories chain was especially strong, but catalog sales were even stronger, posting a nearly 53% rise. (Click here for information on the company's four concepts.)

EPS was $0.16, $0.07 above last year's figure and three pennies better than First Call's consensus estimate. In the margins department, gross margins improved to 40.5% from 39.3% year-over-year and operating income improved to 5.1% from 3.8% as selling, general, and administrative expense decreased slightly.

But what might be the most important development at Williams-Sonoma isn't the earnings numbers but the company's Nov. 1 launch of its new Web site, a classy affair that has the look and feel of a glossy catalog and effectively translates the company's well-heeled image.

While some market watchers grew understandably impatient waiting for Williams-Sonoma to go online, the wait appears to have been well worth it. Actually, the company has had its toes in virtual water since the summer through two June announcements, the first a launch of a bridal registry and gift purchasing site that has been well-received, and the second a partnership with the Epicurious food site. Epicurious is the online home of Gourmet and Bon Appetit magazines.

And now everything is in place in time not only for Thanksgiving but the post-turkey holiday rush and the year 2000 celebrations -- all of which are promoted on-site -- and inventories have been boosted in preparation. Given the company's considerable catalog fulfillment expertise, turning attentions to the Internet should be a natural and very manageable next step.

But the Williams-Sonoma legend is one widely told; investors who have bought in at virtually any time over the last several years have been well rewarded, even vis-a-vis the impressive returns of the high-flying Standard & Poor's 500 Index. Most of the home furnishings sector has benefited from a strong economy. (Click here for the slightly bigger picture.)

For those not currently holding, then, the question becomes whether now is "too late" to get into Williams-Sonoma. Some brokerages have been toning down their recommendations lately based on valuation. At more than 46 times projected full-year 1999 earnings, it's somewhat difficult to call the stock "cheap."

But the way a company justifies rich valuations is by execution. It's execution that has seen Williams-Sonoma stock through various peaks and valleys over the past several years, and the expectation of future execution is what likely drove the company to turn away a potential acquirer earlier this year -- whereas competitor Pier 1 Imports (NYSE: PIR) was turned down by another. Barring signs of a slowdown, further opportunities for long-term investors appear to be in the offing.

Related Links:
Williams-Sonoma Web site
Williams-Sonoma Corporate Web site
Williams-Sonoma Message Board

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