Interestingly, the company is seeing strong demand from online purchasers who wish to pick up products in-store. This apes the strategy of Pier 1 Imports, Inc. (NYSE:PIR), which has invested significantly in ensuring that its customers can engage in in-store pickups.
The company’s key growth brands West Elm and Pottery Barn recorded double-digit and high-single-digit increases in comparable-brand revenues, respectively. Moreover, the company can expect more growth to come because new home purchases tend to spur home furnishings purchases. This is something to look out for because thus far we haven’t seen large increases in new home purchases in this recovery. What we have seen, however, has contributed to earnings upgrades at home improvement stores likeThe Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW).
What the industry is saying
In general, there have been a strong set of earnings for the home furnishings sector and it has momentum going into the second half of 2013. What makes the sector interesting is that a number of retailers within it have some good internal drivers to go along with positive end demand.
For example, Restoration Hardware Holdings Inc (NYSE:RH) is engaging in a growth strategy which involves rolling out new full-line stores. The idea is to try and put more of its product offering on display in showrooms. The existing full-line galleries are exceeding expectations, and the company recently upgraded its revenue and earnings forecasts. In addition, the company is seeking to generate revenue and margin expansion through expanding into categories like art and objects of curiosity.
Like Williams-Sonoma, Inc. (NYSE:WSM), Pier 1 Imports is also aggressively engaging in developing a multi-channel approach to retailing. Its plan is to invest in point-of-sale in-store systems that will help to drive e-commerce sales in future. I noted that the Wiliams-Sonoma’s management cited how strong the growth in revenues was from online customers who wanted to pick up good from the store; this has actually been a key part of Pier 1’s strategy, and the fact that a fellow home furnishings company is saying the same thing suggests it is following the right path.
Where next for Williams Sonoma?
Having previously looked at the company and concluded that its stock looks fairly valued at 20 times earnings, I now find myself saying the same thing! Of course, the stock has gone up from around $50 to mid $50’s (as I write this) but I would argue this is largely a consequence of the upgrade to its forecasts that was contained in its recent earnings results. And therein lies the rub. The company is performing very well, but much of this is already considered in the price and investors seem to be relying on earnings upgrades in order to take the stock higher.
It’s not a stock I would be chasing right now but it is well worth a look if we see a dip in the markets because it does have good prospects and the management is executing very well with its multi-channel approach.
Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Williams-Sonoma.
The article Is This Home Furnisher Still a Good Value? originally appeared on Fool.com.
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