What Happened:
Shares of kitchenware and home goods retailer Williams-Sonoma (NYSE:WSM) jumped 6.3% in the afternoon session after major indices soared as yields declined after the Bureau of Labour Statistics reported CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of May 2024 came in better than expected at 3.3% year on year (versus analysts' expectations for 3.4%). The data also revealed that inflation was flat (unchanged) month on month. The inflation results benefitted from a 2% decline in the energy index, while shelter inflation remained sticky (up 0.4% m/m and 5.4% y/y). Sticky inflation is exactly what has delayed the Fed's planned rate cuts in 2024, with some market participants likely worried that inflation might stay higher for longer. Today's report eased those worries a bit.
Separately, the Federal Open Market Committee kept interest rates at 5.25% to 5.50% following its June 2024 monetary policy meeting while also projecting no more than one rate cut in the second half of the year. The committee noted in its post-meeting statement that, "In recent months, there has been modest further progress toward the Committee's 2 percent inflation objective."
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
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What is the market telling us:
Williams-Sonoma's shares are quite volatile and over the last year have had 13 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock gained 19.1% on the news that the company reported fourth-quarter results, with revenue and EPS exceeding Wall Street's expectations. Management noted that although 2023 was the slowest housing market in several decades, it avoided discounting, enabling it to deliver an operating margin ahead of its pre-pandemic profitability. Revenue outperformance was driven by better-than-expected same-store sales at its flagship Williams Sonoma brand (1.6% growth vs estimates of negative 0.5%) and Pottery Barn (negative 9.6% vs estimates of negative 10.3%). The revenue and gross margin beats also led to an EPS beat, and management increased the company's quarterly dividend by 26% and share repurchase capacity to $1 billion. In addition, the company's board approved a new $1 billion stock repurchase program. Zooming out, this was a great quarter that shareholders will appreciate.
Williams-Sonoma is up 53.5% since the beginning of the year, and at $312.34 per share it is trading close to its 52-week high of $320.24 from May 2024. Investors who bought $1,000 worth of Williams-Sonoma's shares 5 years ago would now be looking at an investment worth $5,340.
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