Please ensure Javascript is enabled for purposes of website accessibility

Why Williams-Sonoma Inc. Can Be a Long-term Market Beater

By Motley Fool Staff - Mar 28, 2017 at 1:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

At current levels, this may be the value stock you have been hoping to find.

In this segment from the Motley Fool Money, Chris Hill is joined by Seth Jayson, Andy Cross, and Ron Gross as they cover the latest news from Williams-Sonoma (WSM -2.13%), which is enjoying solid results at its eponymous chain and its West Elm stores. And despite weakness with the Pottery Barn brand, there is reason to believe this stock could be a long-term market beater.

A full transcript follows the video.

This video was recorded on March 17, 2017.

Chris Hill: A mixed holiday quarter for Williams-Sonoma. Overall profits came in higher than expected, but Williams-Sonoma is the parent company of Pottery Barn. Andy, they are struggling over there at Pottery Barn.

Andy Cross: Yeah, they are. Relatively, they did, as you mentioned, better than some of us were expecting. But their brand growth really has been falling. Pottery Barn was down 4%, and Pottery Barn Kids and Teens are both down, 5% and 8% respectively. 

West Elm continues to be the bright spot at Williams-Sonoma. Here's what you have with this store. You have a loyal customer base that loves to shop at Williams-Sonoma. They tend to be older demographic, wealthier demographic. They are competing with the Amazons and Wayfairs of the world. Most of the products you buy at Williams-Sonoma you can only buy at Williams-Sonoma; same with West Elm. With West Elm, they're actually having more success going into the younger demographic markets like college-aged kids. And you have a business that's basically flat. GDP growth kind of levels. They're very diligent on the cost side. It generates healthy profits. It'll probably grow earnings in the mid-single digits this year. They generate a lot of cash, and they buy back stock and they invest it well. The stock sells at 14 times earnings.

So I think you have a market-beater from here on out. The stock is around $50. They bought back 13% of the shares over the last few years. You have a decent value play, and maybe you get some leverage as they continue to expand internationally. I think you have a good shot at some good, healthy market-beating returns, considering that the market is going to grow 7% a year. I think they can beat that.

Hill: They also do a good job across the omnichannel, when you think about it. A lot of bricks-and-mortar retailers struggle. They do a good job with their stores, with their e-commerce, with the catalogs.

Cross: Yeah, and they just brought in, just this week, announced a new leader for Pottery Barn. The longtime leader there, who I think has been there 20 years, is stepping down and someone else is coming in. So, breathing some new life into a brand that desperately needs it.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Williams-Sonoma, Inc. Stock Quote
Williams-Sonoma, Inc.
$120.72 (-2.13%) $-2.63

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.