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Williams-Sonoma Inc WSM

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Shifts in Business Lead to Structurally Higher Operating Performance at Williams-Sonoma

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We are lifting our fair value estimate for narrow-moat Williams-Sonoma to $104 from $81 per share. There are three factors that have led to this change. The first stems from our prior underestimation of the business-to-business opportunity Williams-Sonoma is pursuing. While set to represent $300 million in 2020, management believes the effort can reach $1 billion in sales in the next five years. Our prior forecast included total sales that rose by roughly $850 million between 2019-24, implying modest annual sales growth outside of the B2B expectations. But we think this is unlikely, and as such we have raised our 2024 sales forecast to $7.5 billion from $7.2 billion prior to include this expansion segment tailwind. In a post-COVID-19 environment (2022), our forecast now includes sales growth that average 4%-5%, in line with the mid- to high-single-digit forecast the firm targets to achieve (from 3%-4% prior). The sales lift accounted for roughly $5 of the fair value change.

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Company Profile

Business Description

With a wide retail and direct-to-consumer presence, Williams-Sonoma is a leader in the $117 billion home furnishings category. Namesake Williams-Sonoma (210 stores) offers high-end cooking essentials, while Pottery Barn (201) provides casual home accessories. Brand extensions include Pottery Barn Kids (72) and PBteen. West Elm (121) is an emerging concept for young professionals, and Rejuvenation (10) offers lighting and house parts. Williams-Sonoma also has a business-to-business team that supports projects that range from residential to large-scale commercial.

3250 Van Ness Avenue
San Francisco, CA, 94109
T +1 415 421-7900
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings Oct 31, 2020
Fiscal Year End Feb 2, 2021
Stock Type Cyclical
Employees 27,000