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Cooking Up Growth at Williams-Sonoma, Inc. (WSM)

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Right now, a stronger housing market means better prospects for Williams-Sonoma, Inc. (NYSE:WSM) as shoppers buy new decorations, silverware, and furniture for their homes. Interest in high end cooking appliances could also add big ticket sales for this retailer. The company can also benefit from shoppers’ interest in self-sufficiency and disaster preparation as well. Stores in the Middle East and Australia offer international growth. This retailer doesn’t have the cheapest stock in the home furnishing business, though.

Williams-Sonoma, Inc. (NYSE:WSM)Recent Results

Williams-Sonoma had a good third quarter, although its retail chains experienced mixed results. In a 3Q 2012 press release, Williams-Sonoma reported 11.1% quarterly sales growth for Pottery Barn and 13% sales growth for West Elm, but the flagship Williams-Sonoma brand only achieved 1.3% revenue growth. Overall, the chain achieved 8.9% higher sales and 12.6% higher income for the quarter. With a 19 trailing P/E and a 16 forward P/E on the morning of February 6, Pier 1 Imports, Inc. (NYSE:PIR) is priced for growth. Pier 1 Imports, Inc. (NYSE:PIR) and Bed Bath & Beyond Inc. (NASDAQ:BBBY) also had a good quarter, illustrating overall home furnishing market strength.

Pier One achieved 10.9% revenue growth for the quarter, although the retailer’s 3% income growth wasn’t as impressive as Williams-Sonoma’s figure. Valuation metrics suggest that Pier One might slow down in 2013 as well, as the chain had a trailing P/E of 13 and a forward P/E of 16. Pier One’s five year PEG ratio of 0.96 does suggest better long term growth prospects. The Fool’s Jacob Roche provides some more detail about Pier One’s strategy, explaining that Pier One expanded its lineup of cheaper home decorations because pricy furniture wasn’t selling. Pier One’s recent sales growth suggests that this strategy continues to pay off, and low priced, attractive home decorations could ramp up the competitive pressure on Williams-Sonoma.

Bed Bath & Beyond looks relatively cheap with a trailing P/E of 14 and a forward P/E of 12. This chain racked up a 15.3% sales gain last quarter, although it only reported 1.8% earnings growth. Bed Bath & Beyond’s 1.04 PEG ratio also suggests a slight premium. Sales that strongly surpassed income may mean that Bed Bath & Beyond focused on price competition with other home furnishing stores, which could threaten Williams-Sonoma’s margins. Williams-Sonoma does have some projects of its own under way that could boost sales, and another firm showed some confidence in the home cooking market with a recent acquisition.

Home Cooking

The Williams-Sonoma product line includes high end stoves from Viking and other manufacturers. Williams-Sonoma isn’t the only company that could benefit if more shoppers buy Viking stoves. Commercial cooking equipment seller The Middleby Corporation (NASDAQ:MIDD) frequently buys other commercial cookware companies and adds their brands to its lineup, but this January Middleby shelled out $380 million for Viking. The Associated Press did just report that Middleby laid off 20% of the Viking workers and the CEO and founder of Viking, Fred Carl Jr., retired. Post-acquisition layoffs aren’t that unusual though, and the original acquisition announcement still seems like good news for Williams-Sonoma.

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