Is Williams-Sonoma Finally Finding Its Footing?

Like so many mall-centric retail companies, Williams-Sonoma (NYSE: WSM) has been struggling to adapt to the new omnichannel order. But perhaps it's beginning to: Shares were up 12% on Friday after it reported higher-than-expected profits for the last quarter. Its comps growth of 3.5% was twice what was forecast.

In this segment of the Motley Fool Money podcast, host Chris Hill and Fool senior analyst Ron Gross talk about the company's inconsistent performance across its chains (West Elm, Pottery Barn, and its namesake), why its e-commerce efforts are still unsteady, and whether it's time to give the stock a look.

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This video was recorded on May 31, 2019.

Chris Hill: Shares of Williams-Sonoma up 12% on Friday, after first-quarter profits came in higher than expected. Same-store sales up 3.5%, Ron. That's not enormous. That is, however, double of what was expected.

Ron Gross: Maybe these guys have finally turned the corner. This has not been a good story over the last five years. In fact, the stock is down 14% over the last five years. Up 14% this year, but even taking that into account, still down over a five-year period. This time around, they did beat expectations. West Elm, 11.8% comp growth. That's a big number. Good to see that. Even positive 1.5% at Pottery Barn. You did see a decline in their namesake Williams-Sonoma stores of about 1.6%. Those stores continue to struggle. But the other brands seem to be making up for it. You saw an expansion in operating margins, which is great, great to see. As a result, adjusted earnings were up 21%, for a company that has not typically put up those kind of growth numbers. Perhaps some of the changes they've been making to merchandising and advertising is taking hold.

Hill: They've definitely had some store closures in the namesake Williams-Sonoma brand. How are they doing in terms of correspondingly ramping up the e-commerce?

Gross: E-commerce continues to be one of their focuses. It is supposedly a multi-channel company, but a lot of the things they sell don't necessarily translate that well to e-commerce. So it is an area of focus for them. I don't see it being a big part of the story, at least not yet.

One thing, interestingly, that they did highlight is that they were just named for the first time to the Fortune 500 of largest companies in the U.S. It's only a $4.6 billion company, which was puzzling to me. I had just assumed, incorrectly, that the Fortune 500 companies were larger.

Hill: Do they have jackets for that?

Chris Hill has no position in any of the stocks mentioned. Ron Gross has no position in any of the stocks mentioned. The Motley Fool recommends Williams-Sonoma. The Motley Fool has a disclosure policy.