1 Reason to Buy Williams-Sonoma Stock
Key Points
Williams-Sonoma keeps growing even though the housing market is stagnant.
It's taking market share, and it raised its outlook without assuming a housing rebound.
After a big run, the stock isn't cheap, which puts the focus on whether that resilience can last.
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When Williams-Sonoma (NYSE:WSM) reported second-quarter results in late August, CEO Laura Alber said the company continues to "compound results quarter after quarter despite the stagnant housing market." That's the one reason to buy the stock.
That's a bold claim for the retailer behind Pottery Barn, West Elm, and its namesake kitchen brand, which normally depends on people buying and furnishing homes. Yet the stock is up 37% over the past year as of Nov. 11 and sits about 3% below a new high.
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The reason the stock is up and worth buying is its resilience in a weak market. In the second quarter (ended Aug. 2), comparable brand revenue -- sales growth at established stores and websites -- rose 6.2% over the year-ago quarter.
This growth came amid a flat home furnishings industry, according to CFO Jeff Howie. That suggests it is taking more customers from competitors without charging lower prices. "We are driving growth and market share gains without discounting," Howie said.
Avoiding promotions to drive sales means steadier margins. Adjusted operating margin, which excludes one-time tariff refunds, was a healthy 17%. That translated to adjusted earnings per share rising 5% year over year to $2.10.
Management raised its full-year comparable brand revenue outlook to 4% to 6.5% growth, up from its previous guidance of 2% to 6%, without counting on a housing recovery. It makes you wonder how much higher this growth would be in a strong housing market.
Image source: Getty Images.
After a 49% run over six months, the stock could pull back if the third-quarter report shows slowing growth.
Still, Alber believes the company has "proven that our business can succeed regardless of the housing market." Management targets mid-to-high single-digit annual revenue growth with an operating margin in the mid-to-high teens.
The stock trades at 25 times analysts' earnings estimate for the fiscal year ending January 2028, which isn't a cheap valuation, but it's fair for a company growing through a weak market. If consumer spending picks up or the housing market recovers, Williams-Sonoma could see even stronger growth, benefiting the stock.
Should you buy stock in Williams-Sonoma right now?
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Williams-Sonoma. The Motley Fool has a disclosure policy.
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