Why Williams-Sonoma Inc. Can Be a Long-term Market Beater
In this segment from the Motley Fool Money, Chris Hill is joined bySeth Jayson, Andy Cross, and Ron Gross as they cover the latest news from Williams-Sonoma (NYSE: WSM), which is enjoying solid results at its eponymous chain and its West Elm stores. And despite weakness with the Pottery Barn brand, there is reason to believe this stock could be a long-term market beater.
A full transcript follows the video.
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This video was recorded on March 17, 2017.
Chris Hill: A mixedholiday quarter forWilliams-Sonoma. Overall profits came in higher than expected, butWilliams-Sonoma is the parent company ofPottery Barn. Andy, they are strugglingover there at Pottery Barn.
Andy Cross: Yeah, they are. Relatively, they did,as you mentioned, better than some of us were expecting. But their brand growthreally has been falling.Pottery Barn was down 4%, andPottery Barn Kids and Teens are both down, 5% and 8% respectively.
West Elm continues to be the bright spot at Williams-Sonoma. Here's what you have with this store. Youhave a loyal customer base that lovesto shop at Williams-Sonoma. They tend to be older demographic,wealthier demographic.They are competing with theAmazonsandWayfairsof the world. Most of the products you buy atWilliams-Sonoma you can only buy at Williams-Sonoma; same with West Elm.With West Elm, they'reactually having more success going into the youngerdemographic markets like college-aged kids. And you have a business that's basically flat. GDP growth kind of levels. They're verydiligent on the cost side. It generateshealthy profits. It'll probably grow earnings in the mid-single digits this year. They generate a lot of cash, and they buy back stock and they invest it well. The stock sells at 14 times earnings.
So I think you have a market-beater from here on out. The stock is around $50. They bought back 13% of the shares over the last few years. You have a decent value play, andmaybe you get some leverage as they continue to expand internationally. I think you have a good shot at some good, healthy market-beating returns,considering that the market is going to grow 7% a year. I think they can beat that.
Hill: Theyalso do a good jobacross the omnichannel,when you think about it. A lot of bricks-and-mortar retailers struggle. They do a good job with their stores, with their e-commerce,with the catalogs.
Cross: Yeah,and they just brought in,just this week, announced a new leader forPottery Barn. The longtime leader there, whoI think has been there 20 years, isstepping down and someone else is coming in. So,breathing some new life into a brand thatdesperately needs it.
Andy Cross has no position in any stocks mentioned. Chris Hill owns shares of Amazon. Ron Gross owns shares of Amazon. Seth Jayson has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Wayfair. The Motley Fool recommends Williams-Sonoma. The Motley Fool has a disclosure policy.