With an array of brands that includes Pottery Barn and West Elm, among others, Williams-Sonoma (WSM 1.73%) is well-known to homewares enthusiasts. But it's largely ignored on Wall Street. That's a shame, because Williams-Sonoma has a lot to offer to value seekers and dividend collectors.
As a retailer of consumer goods, Williams-Sonoma isn't "sexy." But sensible investors shouldn't be concerned with finding the next shiny object in the stock market. Instead, I invite you to apply some Warren Buffett-style principles and see if Williams-Sonoma checks the boxes for value, yield, and growth.
Williams-Sonoma offers a fair value
My first instinct is to check the Williams-Sonoma share price. It is far below its 52-week high of $176 but is also not so beaten down that you might wonder if the company is at death's door.
Yet stock price charts don't tell the full story for value investors. After all, stocks are sometimes cheap for a reason, especially if a company has no earnings. Fortunately, this isn't the case with Williams-Sonoma.
Moreover, the company's trailing-12-month P/E ratio of 7.3 is less than half the median of 15.7 for its sector. Or if price-to-sales (P/S) ratio is your preferred metric, then Williams-Sonoma's 0.93 is nearly in line with the sector median of 0.87.
So far, Williams-Sonoma looks like a decent Buffett-style pick.
Generous dividend yield and stock buybacks
Meanwhile, the company demonstrates respect for its shareholders with a 2.63% annual dividend yield, compared to the sector's average yield of 2.13%. Impressively, Williams-Sonoma paid $217 million in dividends and recorded $880 million worth of share repurchases in fiscal 2022. Based on those figures, value and yield hunters might already get the feeling that Williams-Sonoma stock is a bargain stock that's meant to be bought and held forever.
A digital-first growth strategy
Good value and dividend distributions are all fine, but most investors expect growth as well. Williams-Sonoma passes the growth test, having delivered record non-GAAP diluted earnings of $16.54 per share in fiscal 2022 despite the obvious headwinds (inflation, recession fears, you know the drill).
In terms of revenue, Williams-Sonoma didn't report growth across all of its brands in fiscal 2022. However, the company did record modest net revenue growth compared to the previous fiscal year, as well as comparable-brand revenue growth in the Pottery Barn, West Elm, and Pottery Barn Kids and Teen brands.
To what can the company attribute its resilience against a challenging macroeconomic backdrop? Williams-Sonoma President and CEO Laura Alber mentioned the word "digital" no fewer than four times during the company's most recent conference call, so it's not a stretch to connect the dots between Williams-Sonoma's success and the company's e-commerce focus.
With two-thirds of the company's 2022 revenue coming from e-commerce sales, Williams-Sonoma might be quaint, but it's certainly not old-fashioned. Alber drove this point home during the conference call, touting Williams-Sonoma's "proprietary e-commerce platform" and claiming her company as "one of the largest e-commerce players in the United States" (a bold statement, though the "one of" qualifier means it's hard to dispute).
In any event, few Pottery Barn shoppers have likely ever imagined that behind the scenes Williams-Sonoma's "in-house CRM and data analytic teams" are busy optimizing the company's "digital spend and customer connections."
What matters is that Williams-Sonoma's strategy seems to be working even though the market doesn't necessarily appreciate the company's growth, yield, buybacks, and overall value proposition. So feel free to make Williams-Sonoma stock, decidedly unsexy though it may be, a fixture in your portfolio.
