Williams-Sonoma trades at $217.39 per share and has stayed right on track with the overall market, gaining 8.7% over the last six months. At the same time, the S&P 500 has returned 9.1%.
Is now the time to buy Williams-Sonoma, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Williams-Sonoma Not Exciting?
We're sitting this one out for now. Here are three reasons you should be careful with WSM and a stock we'd rather own.
1. Stores Are Closing, a Headwind for Revenue
The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.
Williams-Sonoma listed 513 locations in the latest quarter and has generally closed its stores over the last two years, averaging 2% annual declines.
When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.
2. Flat Same-Store Sales Indicate Weak Demand
Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
Williams-Sonoma’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.
3. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Williams-Sonoma’s EPS grew at an unimpressive 3.3% compounded annual growth rate over the last three years. On the bright side, this performance was better than its 3.2% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.
Final Judgment
Williams-Sonoma isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 24.6× forward P/E (or $217.39 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d suggest looking at the most entrenched endpoint security platform on the market.
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