What happened
Shares of home goods retailer Williams-Sonoma (WSM 2.47%) jumped 17.4% in January, according to data provided by S&P Global Market Intelligence. Although it didn't report any significant news in the month, it's benefiting from renewed investor confidence in stocks that have been posting excellent performance.
So what
Williams-Sonoma posted consistent comparable-sales increases, and neither the pandemic nor inflation stopped that streak. It operates a broad, omnichannel business under several highly regarded banners: the eponymous Williams-Sonoma, known for kitchenware; the upscale Pottery Barn brand; and the midrange West Elm, among others.
The premium nature of these brands provides resilience, since the company's target market has more money to spend than the average consumer in any economic atmosphere. However, the varied price points of the brand portfolio also give it a hedge, since consumers at the lower end of the economic spectrum can switch down brands.
NYSE: WSM
Key Data Points
As a premium name, it can also charge higher prices on its products, which typically fuels solid net income. That's not to say it hasn't been affected by inflation, but rather it's managing through it with the expected margin pressure but still enjoying robust consumer engagement.
In the 2022 third quarter, comparable brand revenue increased 8.1%, and earnings per share rose 13% to $3.72. Management gave a full fiscal 2022 outlook of a mid-to-high-single-digit comps increase, and operating margin in line with 2021 levels, which was 17.6%.
Williams-Sonoma made several executive leadership changes in January to strengthen it position as an industry leader, and it looks poised to continue posting growth in 2023.
Now what
Despite the company's excellent performance throughout 2022, Williams-Sonoma stock lost 32% over the year. As investor confidence rises in the market, it's not surprising that high-performance stocks would post solid gains.
While short-term pressure abounds, Williams-Sonoma has demonstrated that it can get through it with some scratches, but no significant impact to its business. On top of that, there's still a huge market opportunity to grow. Management is expanding the company's business-to-business operations as well as its entry into European markets.
Williams-Sonoma stock has outperformed the market for years, and yet it trades at a dirt cheap valuation of less than 9 times trailing-12-month earnings. It also pays a dividend that yields 2.2% at the current price.
This is an under-the-radar bargain that provides value and growth potential, and the stock rise in January should be a good omen for the rest of the year.
