Williams-Sonoma (WSM -0.89%) shares have had a disappointing performance so far in 2023. While the retailer's stock is in positive territory, it is still trailing the S&P 500 through early April. Shares had been trouncing the wider market, too, indicating growing pessimism on Wall Street about the company's short-term prospects.

Against that mixed backdrop, let's take a closer look at the stock to see if it represents an attractive buy for 2023 and beyond.

The growth update

Investors don't have to read between the lines to see clear evidence that the business is slowing. CEO Laura Alber said in mid-November that the economic environment had become "more uncertain" while continuing to expand. In mid-March, Alber said the industry had switched to a modest decline.

These economic currents had a direct effect on sales growth, which slowed to a 1% decline in the fourth quarter from an 8% increase in the prior quarter. Williams-Sonoma grew 7% for the full year 2022, but management currently expects a flat result for 2023.

Weaker profits

As you might expect, the weakening sales environment is pressuring profits. Gross profit margin fell last year as costs increased for everything from shipping to raw materials. Yet executives protected operating profit margin, in part by becoming more efficient in areas like labor and advertising. Williams-Sonoma's margin held near its pandemic high of 17%.

Chart showing Williams-Sonoma's operating margin rising since 2020, with recent dip.

WSM Operating Margin (TTM) data by YCharts

Unfortunately for shareholders, cost pressures will be harder to offset in a zero-growth environment. Williams-Sonoma is projecting that operating profit margin will fall to between 14% and 15% of sales from over 17% last year. Much of that decline reflects the fact that many peers are slashing prices. "The housewares market has become extremely promotional," Alber told investors last month.

The rebound ahead

Executives say they are confident that margins will settle at above 15% of sales over the long term. Investors can't count on a quick rebound here, especially if economic trends worsen into late 2023. But there are other reasons to like this stock today.

Williams-Sonoma prioritizes cash returns, for example. Management just boosted the dividend by 15% and sent essentially all of its $1.1 billion of 2022 operating cash flow back to shareholders through the dividend and stock buyback spending.

Shares aren't expensive today, either. You can own the stock for less than 1 times annual sales, down from a valuation that crossed 2 times sales in earlier phases of the pandemic.

On the other hand, this specialty retailer competes mainly in a home furnishings niche that's under extreme pressure today. Its higher-end focus protects it from some pricing pressures, but sales and earnings could disappoint for several years, depending on economic growth trends. There are more diverse retailers that compete in this space, after all, like Home Depot.   

Williams-Sonoma isn't facing liquidity or profit margin problems. And the business could return to a more normal growth and earnings profile as early as 2024.

But investors might want to stay cautious when considering focused exposure to the home furnishings retailing niche. The promotional selling environment could worsen over the next several quarters, potentially leading to a more attractive stock price for this solid business.