Williams-Sonoma (WSM)

• Article
• Discussion
• Edit
• History
• Bookmark

Bulls: Reasons To Buy Feeling Bullish? Be the first to explain why this would make a good investment See all Bears Reasons Bears: Reasons To Sell Decrease in consumer spending is killing WSM 100% agree Decrease in consumer spending is killing WSM Williams Sonoma (WSM) same store sales were crushed at its 613 Williams Sonoma and Pottery Barn stores - down 11.7% from the year ago period. As a result, EPS, exluding gains from the sale of a corporate jet, were off 65% from the year ago period View or Edit Reason 2 votes 100% agree Send the authors a comment or suggestion agree, shorted this loser at $15 http://bigbigbet.blogspot.com/ [Dismiss] [Done] See All Suggestions

Top Contributors Eve Peters John Behan Related Articles Bed Bath & Beyond (BBBY) Pier 1 Imports (PIR) U.S. Housing Market E-Commerce J.C. Penney (JCP) Related Blog Posts » See All Related Posts powered by Wikinvest Wire

As a home goods retailer, Williams-Sonoma is particularly subject to fluctuations of the housing market, unstable exchange rates, and seasonal changes in consumer demand. The housing bust that began in 2006 has taken a significant toll on sales and operating margins for the company; annual net revenue growth was 13%-17% between 2003 and 2005, and has not been above 6% since 2006.^[1] However, while growth rates have slowed, the company has managed to sustain growth despite macroeconomic challenges. From 2004 to 2008, net revenues grew from $2.8 to $3.9 billion - representing a 9.4% rate of compound annual growth.^[1] The company attributes its ability to survive the negative climate to its focus on consistent product quality, customer service, and generation of new stores and brands.

[edit] Business Overview

[[Image:Earnings_vs_Rev.jpg|thumb|500px|right|Williams-Sonoma's Earnings vs. Revenue, 2005-2007^[1]

Williams-Sonoma sells products for the home through its five retail store concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Williams-Sonoma Home), and directly to customers through its seven direct-mail catalogs (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West Elm and Williams-Sonoma Home) and six e-commerce websites (williams-sonoma.com, potterybarn.com, potterybarnkids.com, pbteen.com, westelm.com and wshome.com).^[2] As of February 3, 2008, the five retail concepts operate 600 stores in 44 states, Washington, D.C., and Canada.^[2] The catalogs reach customers throughout the United States .^[2]

Annual revenues have grown over each of the past five years (from $2.8 to $3.9 billion)^[1], with most of the growth occurring earlier on due to the company's creation of new brands and openings of additional stores. In 2002, Williams-Sonoma launched West Elm, a brand targeted toward young, professional, and design conscious consumers.^[2] The company has aimed for rapid unit growth in this emerging brand, opening 27 stores within a span of five years. The growth and development of West Elm accounts for 37% of the company's unit growth and almost half of its square footage growth for 2008.^[3] While expanding West Elm, Williams-Sonoma also launched the PBteen brand - home furnishings aimed at the teenage market - in 2003. In 2006, the company launched Williams-Sonoma Home, expanding the product offering beyond the previously kitchen-focused collection.^[4] At the same time, the company closed all of its remaining Hold Everything stores and transitioned the associated merchandising into the other brands.^[4]

The generation of these emerging brands has served to mitigate the overall trend of decreasing same-store sales, evident in the 5-year decline in gross margin (from 40.3% in 2003 to 38.9% in 2007).^[1]

[edit] Business and Financial Metrics

^[5]

Net revenues increased 5.8% to $3.94 from $3.73 billion in 2007, with positive revenue growth in all brands.^[6] In the retail channel, net revenues in 2007 increased by $127,240,000, or 5.9%. In the direct-to-customer channel, net revenues in fiscal 2007 increased by $90,181,000, or 5.7%. This increase was driven by an overall increase in catalog of 3.7%, in page circulation of 7.9%, and continued strength in the Internet business.^[6] In core brands, net revenues increased 3.4% over fiscal 2006, while net revenues in emerging brands increased 36.0% over the same period.

Comparable store sales decreased 0.3%, primarily resulting from the significant weakness in the home furnishings sector and an generally weakened macro-environment.^[6]

[edit] Business Segments

[edit] Retail Stores (58% of Net Revenues)

In 2007, retail net revenues accounted for 57.8% of the company's business.^[2]. Williams-Sonoma's 600 total retail stores include 256 Williams-Sonoma, 198 Pottery Barn, 94 Pottery Barn Kids, 27 West Elm, 9 Williams-Sonoma Home and 16 Outlet stores carrying merchandise from all concepts.^[4]

Store Count by Segment, 2007^[7]

Williams-Sonoma: The original brand, Williams-Sonoma sells modish cookware, including pots, pans, utensils, flatware, glassware, and small appliances. Williams-Sonoma operates 256 stores and markets to an upper-middle class demographic. The average store size is 6,100 square feet, which has increased steadily over the last five-plus years.^[8] Williams-Sonoma, Inc. generally opens 1-3 new flagship stores per year.

Pottery Barn: Pottery Barn was acquired by Williams-Sonoma, Inc. in 1986 and has since become another flagship brand of the company. Pottery Barn sells casual home furnishings, including internally designed as well as imported products. Extensions include Pottery Barn Kids and PBTeen, brands targeted toward a younger demographic. Pottery Barn operates 198 stores, with an average store size of 12,500 square feet. Much like Williams-Sonoma, store size has increased steadily over the last five-plus years, and the segment is relatively mature.^[8]

West Elm: West Elm is an emerging Williams-Sonoma, Inc. brand, presenting a selection that includes furniture, textiles, decorative accessories, lighting and tabletop items. The products appeal to the style-savvy consumer of chic and modern home decór. This brand pays particular attention to green practices and strives to offer a collection made primarily from organic materials.^[9] West Elm also aims to offer a more affordable price point and more modern look than Pottery Barn. The average store size is 18,200 square feet. West Elm operates 27 stores.

[edit] Direct to Customer Operations (42% of Net Revenues)

Net revenues in Direct-to-Customer Operations (DTC) are second to those in retail, accounting for 42.2% of the company's business in fiscal year 2007.^[2] Of the six merchandising concepts in the DTC segment (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm and Williams-Sonoma Home), the Pottery Barn brand and its extensions have been the major source of revenue growth for the last several years. The company attributes this growth to its continuing investment in product design, product quality and multi-channel marketing.^[4]

[edit] Key Trends and Forces

[edit] U.S Housing Market Slump Stifles Sales

The housing market slump that began in early 2006 has hit the home furnishing retailer business hard. Fewer consumers are purchasing new homes, thereby decreasing sales for stores like Williams-Sonoma. In early 2008, same-store sales decreases worsened dramatically, from 8.6% in May to 14% in July. Pottery Barn's quarterly same-store sales decline of 16% contributed the bulk of this, along with Williams-Sonoma's quarterly decline of 4.5%.^[10]

[edit] Seasonal Variations in Demand Heighten Net Earnings in Fall/Winter

A significant portion of Williams-Sonoma's net revenues and net earnings are typically realized during the period from October through December. This trend is attributed largely to the general patterns associated with the direct-to-customer and retail industries.^[11] Net revenues and earnings are generally lower between January and September of each year.^[11] In 2008, however, the recession has significantly limited the upside potential normally enjoyed by Williams-Sonoma and its competitors.

[edit] Declining U.S. Dollar Raises Costs of Goods

Approximately 60% of Williams-Sonoma merchandise purchases are foreign-sourced, primarily from Asia and Europe. This dependence on foreign vendors means that any upward valuation in the Chinese yuan, the euro, or any other foreign currency against the U.S. dollar is likely to result in higher costs for those goods. In cases in which Williams-Sonoma has negotiated the prices in U.S. dollars, the foreign vendors sometimes demand higher prices, delay shipments, or discontinue sales. ^[12] These international fluctuations narrow operating margins for Williams-Sonoma both due to higher prices on goods and lost efficiency in the supply chain.

[edit] E-Commerce Sets Challenging Pace for Retailers

Williams-Sonoma has not embraced the rise of e-commerce particularly quickly. Though it has six websites, most of its sales still occur in-store. Over the past two years, however, Internet sales have outstripped catalog sales.^[13] An increasing percentage of the company's net earnings depend on its ability to develop an effective and user-friendly web presence.

[edit] Competition

Substantial sales growth in the direct-to-customer industry within the last decade has caused an influx of new competitors and has heigtened competition from established companies.^[11] William-Sonoma's specialty retail stores, mail order catalogs and e-commerce websites compete with other retail stores, including large department stores, discount stores, other specialty retailers offering home centered assortments, other mail order catalogs and other e-commerce websites.^[11] The company aims to distinguish itself through high quality merchandise, top-notch service, and attractive storefronts.^[11]

Bed Bath and Beyond (NYSM: BBBY) is the top domestic merchandise retailer in the United States. Its total sales were almost double those of Williams-Sonoma in 2006. Bed Bath & Beyond offers less expensive products than Williams-Sonoma and it generally caters to a younger demographic. Pier 1 Imports (NYSM: PIR) is another leading home furnishings retailer with 1,122 stores. While total sales exceeded $1.6 B in 2006, Pier 1 Imports has historically failed to match Williams-Sonoma’s sales per square foot. A final competitor, Crate & Barrel, is smaller, boasting 145 stores, but offers a similar style of furniture to Williams-Sonoma. In addition to these larger competitors, Williams-Sonoma faces considerable competition from local furniture boutiques that also offer high-quality cookware and furniture.

Market Share: Due to the product diversity and intense competition of the retail market, it is difficult for any individual retailer to capture significant market share.

^[14]

 Williams-Sonoma

	Select All  |  Select None Metrics Revenue by Geography - International Revenue by Geography - US Revenue by Direct Marketing Cost of Goods Sold Store Operating Expenses Sales Growth Number of Stores Square Footage Inventory per store Inventory per square foot Selling, General and Administrative expenses Cost of Goods Sold (COGS) Revenue Net Income Same Store Sales Growth Sales per Store Sales per Square Foot Inventory Turnover Cancel

	Select All  |  Select None Companies Bed Bath & Beyond (BBBY) Design Within Reach (DWRI) Haverty Furniture Companies (HVT) Jennifer Convertibles (JEN) Kirkland's (KIRK) Pier 1 Imports (PIR) Restoration Hardware (RSTO) Williams-Sonoma (WSM) Cancel

Choose View:20042005200620072008Most Recent

2004 Data

2005 Data

2006 Data

2007 Data

2008 Data

Most Recent Data Available

+ Select more metrics (18)

Company	Data From	Revenue	Cost of Goods Sold (COGS)	Net Income	Same Store Sales Growth	Sales per Store	Sales per Square Foot	Inventory Turnover
Bed Bath & Beyond (BBBY)	2008	$7.05B[15]	$4.12B[16]	$563M[15]	1%[15]	$7.26M[15]	$234[15]	Add
Haverty Furniture Companies (HVT)	2007	$785M[17]	$395M[18]	$1.76M[18]	(10.6%)[19]	$6.38M[17]	$181[17]	Add
Pier 1 Imports (PIR)	2008	$1.51B[20]	$1.07B[21]	($96M)[20]	(1.7%)[22]	$1.35M[23]	$164[22]	Add
Williams-Sonoma (WSM)	2008	$3.94B[24]	$2.41B[25]	$196M[24]	0.3%[24]	$3.8M[26]	$638[26]	Add

+ Select more companies (8)

See all Home Furnishing Industry WikiData

1. ↑ ^{1.0 1.1 1.2 1.3 1.4} 10-K 2008 WSM, p20
2. ↑ ^{2.0 2.1 2.2 2.3 2.4 2.5} 10-K 2008 WSM, p3
3. ↑ KeyBanc Capital Markets Research
4. ↑ ^{4.0 4.1 4.2 4.3} 10-K 2008 WSM, p4
5. ↑ [WSM Wikidata]
6. ↑ ^{6.0 6.1 6.2} 10-K WSM 2008, p21
7. ↑ 10-K 2008 WSM, p20
8. ↑ ^{8.0 8.1 8.2} KeyBanc Equity Research
9. ↑ Williams-Sonoma Website
10. ↑ The Motley Fool, Aug. 28, 2008
11. ↑ ^{11.0 11.1 11.2 11.3 11.4} 10-K 2008 WSM, p5
12. ↑ 10-K 2008 WSM, p8
13. ↑ WSM 2006 10K, Item 7A, pg. 26
14. ↑ Data from WSM, BBBY, and PIR 10-k reports. 2006.
15. ↑ ^{15.0 15.1 15.2 15.3 15.4} BBBY, 2008 10-K, Item 6 PG 13
16. ↑ BBBY, 2008 10-K, Item 8 PG 27
17. ↑ ^{17.0 17.1 17.2} HVT, 2007 10-K, Item 6 PG 15
18. ↑ ^{18.0 18.1} HVT, 2007 10-K, Item 15 PG F-3
19. ↑ HVT, 2007 10-K, Item 7 PG 19
20. ↑ ^{20.0 20.1} PIR, 2008 10-K, Item 6 PG 16
21. ↑ PIR, 2008 10-K, Item 8 PG 33
22. ↑ ^{22.0 22.1} PIR, 2008 10-K, Item 7 PG 18
23. ↑ PIR, 2008 10-K, Item 6,7 PG 16,19
24. ↑ ^{24.0 24.1 24.2} WSM, 2008 10-K, Item 6 PG 20
25. ↑ WSM, 2008 10-K, Item 7 PG 25
26. ↑ ^{26.0 26.1} WSM, 2008 10-K, Item 7,6 PG 23,20