Williams-Sonoma stock jumps 30% to all-time high on strong Q3

Key points

• Williams-Sonoma stock soared 30% Wednesday after Q3 earnings.

• It has posted an average annualized return of 20.2% over the past 15 years.

• The company raised its guidance for the fourth quarter.

Forget NVIDIA, this specialty retailer was the top gainer on the day.

Williams-Sonoma (NYSE: WSM), a specialty retailer, has quietly been one of the best, most consistent stocks on the market over the past 15 years. It showed that again in the third quarter, with strong earnings that topped estimates and sent the stock skyrocketing.

The retailer, which owns Pottery Barn and West Elm, along with its namesake stores, generated revenue of $1.8 billion, which was down 2.7% from the same quarter a year ago but beat estimates of $1.78 billion.

However, Williams-Sonoma saw impressive profit gains as net earnings rose to $249 million, or $1.96 per share, up 7% year-over-year. Earnings topped estimates of $1.77 per share by about 10%.

The stock gained as much as 30% on Wednesday, and as of mid-afternoon, eastern time, it had surged 28% to $175 per share, which is an all-time high. Williams-Sonoma stock is up about 74% year-to-date.

Gaining market share

Williams-Sonoma’s performance was even more impressive considering this was a challenging environment for specialty retailers, which enabled Williams-Sonoma to gain valuable market share.

The only major property that saw revenue gains in the quarter was Pottery Barn Kids and Teens, with revenue up 4% to $287 million. Also, Williams-Sonoma stores broke even at $252 million.

Its two biggest stores, Pottery Barn and West Elm, saw year-over-year declines. Pottery Barn revenue fell 7.5% to $718 million while West Elm revenue dropped 3.5% to $451 million.

Some of its smaller stores, lumped into the “other” category, reported a 15% revenue increase to $93 million. The “other” stores include Rejuvenation, Mark and Graham, and GreenRow.

However, the company’s bottom-line was helped by effective expense management, as the cost of goods sold dropped 7% to $959 million, or 53.3% of revenue, down from 55.6% in Q3 2023. Selling, general and administrative (SGA) expenses were only up about 2% to $521 million.

Overall, operating income rose about 2% to $321 million, with the operating margin rising to 17.8%, up from 17% a year ago.

“Our operating results reflect the operational improvements that we have been focused on all year and demonstrate the strength of our margin profile in a difficult environment,” Laura Alber, president and CEO, said. “Our strategy of focusing on returning to growth, enhancing our world-class customer service, and driving margin is working.”

The improving margins boosted the company’s cash position to $827 million, up from $699 million a year ago, with operating cash flow of $254 million. This allowed the retailer to authorize another $1 billion in stock buybacks, upping the total to $1.3 billion when combined with the repurchase authorization in March.

Time to “shine”

Coming into the holiday season, Williams-Sonoma is more bullish on its prospects. The company raised its fiscal 2024 guidance to reflect higher net revenue trends and higher operating margin expectations.

“And, as we head into the last quarter of the year, we are optimistic and confident about our business. The fourth quarter is the time of year when we shine,” Alber said.

For fiscal year 2024, the firm anticipates an annual net revenue decline in the range of -3.0% to -1.5% with same-store sales in the range of -4.5% to -3.0%. Both of these are improved from previous projections.

The company is also raising its guidance for operating margin to fall between 18.4% and 18.8%. That is up from previous guidance of 18% to 18.4%.

Over the long term, Williams-Sonoma expects mid-to-high single-digit annual net revenue growth with an operating margin in the mid-to-high teens.

Williams-Sonoma has been a high performer, not just this year, but for the past decade, plus. It has a 10-year annualized return of 17.7% and over the last 15 years, its results are even better with an average annualized return of 20.2%.

The great thing about Williams-Sonoma stock is it is still relatively cheap, with a P/E ratio of just 16. It has shown the ability to shine and grow market share in a difficult market, making it a solid all-weather stock that has mostly flown under the radar.