WSM WILLIAMS-SONOMA, INC
Sector financial performance:
This company, primarily a retailer (more than 50% sales from e-commerce) of kitchenware and home furnishing, has been grouped into retailer-domestic merchandise and home furnishing sector in furnishing industry.
Benefited from continuously strong growth in online sales and bouncing back of in-stores demand for the home furnishing products since the second half of 2017, the downward trend that we have seen from companies in sector since 2015 seems to be making a turn in 2017 and continuing gin 2018 as indicted by re-gaining increase in their comparable brand sales (the typical growth for 2018, 2017, 2016 and 2015: 1.5%, 0.6%. 0.5% and 3%). At the same time, sales from e-commerce have been very strong as indicated by the typical comparable brand growth (online only): 10%, 6%, -3%, and 7% for2018, 2017, 2016 and 2015 respectively.
The typical average gross margin (included occupancy costs and shipping costs) of companies has been seen to go down from about 39% to about 36% in 2018 primarily due to promotions resulted from slowing down traffic of stores. In addition to increase in the average SG&A as percentage of sales, we see the average operating margin was down to 4% from 7% since 2014.
The typical average enterprise price/EBI ratio: 20(interest/EBI ratio of 18%) and stock price/sales ratio is 0.6.
It seems that demand started to take off since 2017 as indicated by growth in comparable sales (3-5% annually) both in e-commerce and in-store. As compared, in –store demand for products of this company has kept weak in 2015 and 2016 as indicated by its flat or even negative comparable sales of stores. E-commerce performances consistently as indicated by the accelerating growth in comparable brand sales.
The first six months of fiscal 2018 compared with same period of 2017 (ended 20180729)
Comparable sales (including online sales comparable brand) increased by about 5%.
Net sales increased by 7% due to increase of 10% in e-commerce and 4% in store sales.
The fiscal 2017 compared with 2016 (ended 20180129)
Comparable sales (including online sales comparable brand) increased by 3.2%.
Net sales increased by 4% due to increase of 5.5% in e-commerce and 2.6% in store sales.
Fiscal 2016 compared with 2015
Comparable sales (including online sales) increased by 0.7%.
Net sales increased by 2.2% due to increase of 4.4% in e-commerce offset by decrease 0.1% in store sales.
Fiscal 2015 compared with 2014
Comparable sales (including online sales) increased by 3.7%.
Net sales increased by 5.9% due to increase of 6.4% in e-commerce and 5.4% in store sales.
Its gross margin (including store occupancy costs) has been down by about 160 basis points to about 37% in 2018 primarily due to higher shipping costs. With increased SG&A as percentage of sales, its operating margin thus decreased to about 8% in 2018.
This stock currently has an enterprise price/EBI ratio of 15 ($69). We think that its stock is being relatively slightly undervalued considering its relatively low multiple of 15 compared with its peers and better performance in margins.