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Stock Analyst Update

Williams Sonoma Boosts Market Share

Efficient marketing, tactical promotions, and smart partnerships have motivated consumers to participate in the narrow-moat firm's umbrella of brands.

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Bolting on its fourth consecutive quarter of positive brand comp gains despite operating in the fragmented and competitive home furnishing industry, narrow-moat  Williams-Sonoma's (WSM) financial results evidence that its brand intangible asset continues to carry weight with its customers. We'd contend that the firm is gaining market share, growing its top line 6% over the quarter, with the furniture and home furnishing industry clocking an average 4% gain. Furthermore, over the last six months, the industry averaged 4.8% sales growth (Census) while Williams-Sonoma posted an impressive 7% hike. In our opinion, this is a function of efficient marketing, tactical promotions and smart partnerships, which motivate consumers to participate in the firm's umbrella of brands.

We don't believe Williams-Sonoma will take its foot off the innovation pedal, offering products that pivot with evolving consumer demands. However, this implies that spending in SG&A could remain inflated from recent levels (27.7% in 2017) as Williams-Sonoma invests to protect its brand. This also underlies our long-term outlook, which calls for top line growth that averages around 3.5% and operating margin that remains constrained to around 10% over the next decade, supporting high-single-digit earnings per share growth throughout our forecast. We don't plan any material change to our $68 fair value estimate and view shares as fairly valued, trading around 16 times our 2018 earnings per share estimate.

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Jaime M. Katz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.