Williams-Sonoma, Inc. (WSM) — Well Done But Over-Cooked

Page 1 of 3

Williams-Sonoma, Inc. (NYSE:WSM) has been around for 57 years, starting with one store in Sonoma, California.  While the brand is far from a new, fast-growth concept, they continue to add to the Williams-Sonoma stable of brands for growth.

The company acquired Pottery Barn in 1986 and expanded the concept into Pottery Barn Kids stores in 2000. West Elm was launched in 2003.  WSM has seven concepts with bricks-and-mortar stores. PBteen and Rejuvenation have only half a dozen stores between them. All the concepts send catalogs and are online. The top five revenue producers are Pottery Barn, Williams-Sonoma, Pottery Barn Kids, West Elm, and PBteen (direct to consumer only).

Williams-Sonoma, Inc. (NYSE:WSM)

The store base is shrinking from a high of 627 in 2009 to 584 in Q3 2012—7% fewer retail stores. Seeing the trend, you might assume Williams-Sonoma is looking to become less focused on a retail bricks-and-mortar presence with the emphasis on direct to consumer (DTC). The company circulates fewer catalogs (down 2% in 2011), but with e-commerce taking off, DTC is now 47% of revenue (up from 39% in Q4 2010), pushing DTC to ever bigger percentages of combined revenue. While it appears that WSM is transitioning to an Amazon.com, Inc. (NASDAQ:AMZN) e-commerce model, that’s probably not the case with management’s intention to keep retail stores as part of the WSM growth story.

From the conference call:

At the beginning of the year, we outlined for you our three key strategic initiatives for driving sustainable profitable growth and increasing shareholder value. They are growing our existing brand, global expansion, and launching new businesses.

I was expecting an initiative to continue closing stores and making retail outlets essentially showrooms for online sales, as in the case of Best Buy Co., Inc. (NYSE:BBY)/Amazon. Amazon.com, Inc. (NASDAQ:AMZN) is considered a category killer, destroying most companies in direct competition with it. Best Buy is a great example of one such destroyed company. Best Buy’s revenue has declined precipitously in the last few quarters after disappointingly flat revenue growth for several years. The price per share has cratered along with the declining earnings to $15 per share after 2010 highs of over $40.  Meanwhile, Amazon continues to trade near its all time high around $280.  That being said, Amazon has not been able to kill WSM as effectively as it did Best Buy.  Amazon does directly compete, carrying some of the same brands, and that may be why the Williams-Sonoma brand stores, heavy into cookware, are comping lower than West Elm and Pottery Barn stores, which have fewer products in common with Amazon. The diversity of Williams-Sonoma across its various concepts is keeping it alive.

That’s not to say Williams-Sonoma is without serious competition. Bed Bath & Beyond Inc. (NASDAQ:BBBY) competes across almost all of WSM’s segments, including cookware, kitchen accessories, furniture, kids’s furniture, bedding and home decor. BBBY has a far larger store base at 1,173 and manages to turn in better margins even without the emphasis on e-commerce that WSM is transitioning to.  They do  more than twice the revenue of WSM and have faster growth with consistently high same store sales.  WSM has beat BBBY’s comps the last two quarters.  Bed Bath & Beyond currently sells at a P/E of around 13 compared to Williams-Sonoma’s 19. BBBY is still largely bricks-and -mortar, but sees high returns on its invested capital at greater than 30%.

WSM’s strong presence in bricks-and –mortar is not cash consuming either, with 2011 returns on invested income at 17%. The capital is split between PP&E and working capital (mainly inventory) nearly evenly. Most of the property is in the stores, with only 17 distribution/customer/corporate HQ care centers.  They own only $138 million in land and buildings, and lease the rest.

Page 1 of 3
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Jobs that May Exist in the Future

The Absolute Best States to Shop in the US

5 Best States for Golf Adventures

Top 15 Places To Visit Before You Die

10 Most Expensive Smartphones in the World

10 States with Lowest Physician Density

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!