On Thursday, Evercore ISI raised its price target on Williams-Sonoma (NYSE:WSM) to $300 from $240, maintaining an Outperform rating on the stock. The firm highlighted the company's robust fourth-quarter earnings and its forward-looking guidance for 2024 as indicators of sustained mid-teens operating margins.
Williams-Sonoma's profitability has seen a significant increase during the pandemic, with demand for home furnishings accelerating and the company capitalizing on the opportunity to reduce promotional activities, which helped mitigate global shipping challenges.
The analyst from Evercore ISI noted that the market had initially perceived the approximate 800-900 basis points improvement in profitability as temporary. However, the company's performance in the second half of 2023, with moderating promotions and transport cost benefits, has reinforced management's outlook for sustained margin potential.
The expectation of additional shipping-cost benefits in the first half of 2024 and a positive turn in comparable sales in the second half further supports a bullish stance.
Despite a 10% decline in comparable sales in 2023, Williams-Sonoma managed to maintain margins, which has led some to question if a margin reset is less likely in 2024, especially if sales continue to accelerate. The company's exposure to macro-housing factors is noted, with only a quarter of sales coming from homeowners who moved within the last three years. The next significant stock catalyst is anticipated to be an improvement in big-ticket item sales.
Evercore ISI commended Williams-Sonoma's management for keeping margins in the mid-teens range, even as home furnishing sales faced recessionary pressures. This was achieved by prioritizing full-price selling, improving supply chain efficiencies, and enhancing customer service.
The revised price target is based on an 18.5 times multiple of the projected $16.25 earnings per share for 2025, reflecting Williams-Sonoma's success over recent years compared to a forward multiple of 10 times just six months prior.
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