Shares of Williams-Sonoma (NYSE:WSM) recently rallied to a fresh 52-week high after the retailer's second quarter numbers topped analyst estimates. 

The company's revenue rose 6% annually to $1.28 billion, beating estimates by about $20 million. Its non-GAAP net earnings rose 26% to $0.77 per share, which cleared expectations by nine cents. That figure was boosted by its top line growth, buybacks, and tax-related savings.

Those growth rates look solid, but does the stock still have room to run?

A couple shops for kitchenware.

Image source: Getty Images.

The key facts and figures

Williams-Sonoma owns its namesake stores, Pottery Barn, and West Elm. These chains all sell upscale home furnishings and kitchenware, and have been surprisingly resilient in the age of Amazon. In fact, Williams-Sonoma's total e-commerce sales rose 8.8% annually during the quarter and accounted for 53.9% of its top line, compared to 52.5% in the prior year quarter.

Williams-Sonoma targets higher-end shoppers with its unique products, which are generally first-party brands that are exclusive to its retail channels. This premium strategy prevents it from being crushed between Amazon and superstores like Walmart.

That's what happened to its lower-end rival Bed Bath & Beyond (NASDAQ:BBBY), which posted negative comps growth over the past five quarters. Here's what comps growth has looked like for Williams-Sonoma's four core brands over the past year.

 

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Williams-Sonoma

2.3%

4.3%

5.6%

1.6%

Pottery Barn

(0.3%)

4.1%

2.7%

2%

Pottery Barn Kids and Teen*

Kids:0.1%
Teen: 3%

Kids: 0.9%
Teen: 2.6%

5.3%

5.7%

West Elm

11.5%

12.3%

9%

9.5%

Total comps

3.3%

5.4%

5.5%

4.6%

Comps growth. Source: Williams-Sonoma quarterly reports. *Reported as one unit in 2018.

Williams-Sonoma attributes that growth to the strength of its e-commerce platform, new digital initiatives like augmented reality features and AI-powered shopping tools, cross-promotional activities between Pottery Barn Kids and Teen and West Elm (which both target younger demographics), and the optimization of its calatog deliveries and its placements of digital ads.

It also noted that its new Rejuvenation (home improvement) and Mark and Graham (personalized gifts and accessories) brands posted double-digit sales growth during the quarter.

Two people look at a catalog of home improvement designs.

Image source: Getty Images.

Williams-Sonoma's margins also remain healthy. Its gross margin rose 120 basis points annually to 36.4% during the quarter, and its non-GAAP operating margin remained unchanged at 6.8%. Its merchandise inventories only rose 2.5%.

For the full year, Williams-Sonoma expects its total comps to rise 3%-5%, compared to 3.2% growth in 2017. It expects its non-GAAP revenue to rise 5%-7%, and for its non-GAAP EPS to grow 18%-21%. Both figures represent an acceleration from its 4% sales growth and 5% earnings growth in 2017.

For comparison, analysts expect Bed Bath & Beyond's revenue to dip 1% this year as its earnings tumble 27%. Things look even bleaker for Pier 1 Imports (NYSE:PIR), which is expected to post a 4% sales decline as its earnings remain in the red.

Unlike many other retailers, Williams-Sonoma isn't aggressively shuttering stores to cut costs. Instead, it plans to open 22 new stores this year, while closing 30 locations -- which will only slightly reduce its store count from 631 in 2017 to 623.

Buybacks, dividends, and valuations

Williams-Sonoma has a solid track record of boosting shareholder value through buybacks and dividends. During the second quarter, it spent $137 million on buybacks and $36 million on dividends.

It's raised its dividend annually for eight straight years, and it currently pays a forward yield of 2.9%. That's lower than Bed Bath & Beyond's 3.5% yield, but that payout was significantly inflated by the stock's 32% decline over the past 12 months. Pier 1 suspended its dividend earlier this year.

At $71, Williams-Sonoma trades at about 16 times this year's non-GAAP earnings. That's a surprisingly low multiple for a stock that rallied nearly 60% over the past 12 months, and is pretty cheap relative to its earnings growth potential.

The bottom line

Williams-Sonoma is still firing on all cylinders thanks to a booming e-commerce platform and its dominance of a high-growth niche, one that benefits from a strong housing market. This stock still looks like a solid investment at its 52-week high, and its buybacks and dividends should buoy its earnings, reduce its valuations, and attract more income investors.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Williams-Sonoma. The Motley Fool has a disclosure policy.