Williams-Sonoma Is Booming: Should You Buy?

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Home furnisher Williams-Sonoma is trading near historical highs after reporting impressive earnings last week. In a retail environment in which bigger competitors such as are being materially hurt by Amazon.com and the online retail revolution, Williams-Sonoma is proving its ability to adapt and thrive under the new industry paradigm.

Sales during the quarter ended on May 4 grew 9.7% to $974 million on the back of a 10% increase in comparable-brand revenue. The number was better than Wall Street analysts' expectation of $943 million in revenue.

Comparable sales of West Elm products increased by an impressive 18.8% in the quarter, while Pottery Barn comparable sales jumped 9.7%, Pottery Barn Kids stores delivered an 8.1% increase in comparable revenue and PBteen comparable sales increased 12%. Even the more mature Williams-Sonoma concept, which has been materially lagging other brands over the last several quarters, delivered a healthy increase of 6% in comparable sales.

Source: Williams-Sonoma.

Williams-Sonoma has built a remarkably strong online business that is generating impressive performance in the direct-to-consumer segment. Direct-to-consumer revenue grew 17.2% from the same quarter in the prior year, for a total of $491 million and 50% of total sales from the Williams-Sonoma banner.

Margins increased slightly during the quarter. Gross profit margin came in at 37.8% of sales, versus 37.6% in the year-ago quarter. Selling, general, and administrative expenses declined to 30.2% of sales from 30.5% in the year-ago quarter.

Earnings per share reached $0.48 during the quarter, up 20% from the same quarter in the prior year and considerably better than the $0.44 per share expected on average by Wall Street analysts. Williams-Sonoma distributed $86 million in cash to shareholders during the period, comprised of $53 million in share buybacks and $33 million in dividends.

In a sign of confidence on the future, the company raised its financial guidance for the year. Williams-Sonoma expects sales during fiscal 2014 in the range of $4.65 billion to $4.73 billion, versus a prior range of $4.63 billion to $4.71 billion. Comparable-brand sales are expected to grow between 5% and 7%. The company also increased full-year earnings per share guidance from a range of $3.05 to $3.15 to the new range of $3.07 to $3.17.

Competitive strengths
President and CEO Laura Alber is quite confident regarding Williams-Sonoma´s ability to sustain performance over time:

Innovative, high-quality product, personalized service, relevant marketing and strong execution across all brands drove these better than expected results. With 50% of our revenue in the direct channel this quarter, we believe our multi-brand, multi-channel platform is driving consistent market share gains and providing us with a sustainable competitive advantage.

The company´s online presence is a huge strategic asset in times in which e-commerce is the name of the game in retail and Amazon is actively gaining market share versus traditional brick-and-mortar players in different categories.

Source: Williams-Sonoma.

The online retailer is known for its aggressive competitive drive and efficient operations. Amazon is willing to sell its products at razor-thin profit margins in order to beat the competition, which represents a major challenge for many companies across the industry.

Bed Bath & Beyond is clearly feeling the pressure, as the company reported really dismal financial performance for the quarter ended on March 1. Net sales declined 5.8%, to $3.2 billion from $3.4 billion in the year-ago quarter, while earnings per share came in at $1.60, lower than the $1.68 per share the company earned in the same period of 2013.

Forward guidance was also a big disappointment for investors, Bed Bath & Beyond forecast earnings for the current quarter in the range of $0.92 to $0.96 per share, down from the $0.93 the company earned during the same period of 2013.

Considering the heavy headwinds affecting competitors such as Bed Bath & Beyond in today's retail environment, the remarkably strong financial performance reported by Williams-Sonoma looks even more impressive.

Foolish takeaway
Williams-Sonoma is firing on all cylinders in a notoriously difficult environment for retailers. Strong brand power, a successful multichannel approach to the business, and solid execution are key long-term advantages and competitive strengths. Keeping this in mind, Williams-Sonoma looks well positioned to continue delivering substantial gains for investors in the years ahead.

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The article Williams-Sonoma Is Booming: Should You Buy? originally appeared on Fool.com.

Andrés Cardenal owns shares of Amazon.com. The Motley Fool recommends Amazon.com, Bed Bath & Beyond, and Williams-Sonoma. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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