QUOTE AND NEWS
SeekingAlpha  Sep 9  Comment 
By Scott Arterburn: The home and furnishing sector is a play on consumer discretionary spending and home sales. There are four stocks that would prosper when Americans get back on their feet and buy and furnish their new homes. These are Bed Bath...
TheStreet.com  Sep 2  Comment 
a This article appeared at 10:21 a.m. EDT on RealMoney Aug. 29. SAN DIEGO (RealMoney) -- Williams-Sonoma , with little in the way of short interest, stunned investors Wednesday with surprisingly bad guidance. Enter Goldman Sachs with a...
Benzinga  Sep 2  Comment 
In a report published Tuesday, Bank of America analyst Denise Chai reiterated a Buy rating and $82.00 price target on Williams-Sonoma (NYSE: WSM). In the report, Bank of America noted, “WSM fell 12% after reporting Q2 earnings that beat the...
Motley Fool  Aug 29  Comment 
Restoration Hardware followed William-Sonoma's stock lower after the former reported disappointing earnings; but should the two be viewed as so connected?
Benzinga  Aug 29  Comment 
Williams-Sonoma (NYSE: WSM) closed down nearly 12 percent Thursday on a weaker than expected outlook suggesting the hardlines retailer is no-longer immune to mounting competitive pressures in the sector. Street estimates and management guidance...
SeekingAlpha  Aug 29  Comment 
By The Value Investor: Investors in Williams-Sonoma (NYSE:WSM) have not been happy with the company's results for the second quarter. The company reported slightly slower-than-anticipated sales growth for the quarter, as it released a third...
Financial Times  Aug 28  Comment 
Williams-Sonoma shares tumble 12 per cent, while weak results from Guess and Abercrombie add to the day’s sell-off for the retail sector
Benzinga  Aug 28  Comment 
Midway through trading Thursday, the Dow traded down 0.31 percent to 17,069.84 while the NASDAQ declined 0.22 percent to 4,559.78. The S&P also fell, dropping 0.20 percent to 1,996.21. Leading and Lagging Sectors Utilities shares rose by...
Benzinga  Aug 28  Comment 
Some of the stocks that may grab investor focus today are: Wall Street expects Dollar General (NYSE: DG) to report its Q2 earnings at $0.83 per share on revenue of $4.77 billion. Dollar General shares gained 1.21% to $64.47 in after-hours...
Wall Street Journal  Aug 28  Comment 
Sales improve at Williams-Sonoma, but the high-end home retailer's forecast falls short, and more.




 

With 610 stores and $3.36 billion in revenue in 2009, Williams-Sonoma (NYSE: WSM) is one of the United States' leading sellers of home decor, bed and bath supplies, and cooking equipment.[1] The Williams-Sonoma portfolio includes Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Williams-Sonoma Home. About 60% of the company's revenue is generated by retail stores, while the remainder is generated by direct-to-consumer operations, such as direct-mail catalogs and e-commerce websites.

As a home goods retailer, Williams-Sonoma is particularly subject to fluctuations in the housing market, unstable exchange rates, and seasonal changes in consumer demand. The housing market slump hit the home furnishing retailer business hard. Fewer homes being purchased means decreased demand for home furnishings and customers with less purchasing power for furnishings and accessories in general. However, Williams-Sonoma recovered strongly from the recession, reporting net income for the first quarter of 2010 of $19.54 million compared to -$18.7 million in the year-ago quarter.

Williams-Sonoma's Internet channels assist the company not only by providing rent-free "real estate" from which to make additional sales, but also by allowing the company to test new products without incurring the costs associated with stocking them in-store. An increasing percentage of the company's net earnings depend on its ability to continue developing its Web presence.

Company Overview

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]

Business and Financial Metrics

First Quarter 2010 Results (ended May 2, 2010)[3]

Williams-Sonoma reported net income for the quarter of $19.54 million compared to -$18.7 million in the year-ago quarter. The company announced an increase in net revenues of 17.3% to $718 million versus $612 million in the first quarter of fiscal 2009. Comparable store sales increased 17.0% from Q1 09. Retail net revenues in the first quarter increased 15.2% to $412 million versus $357 million in the year-ago period. This increase was driven by a 17.0% growth in comparable store sales, partially offset by a 2.7% year-over-year reduction in retail leased square footage, including 20 net fewer stores. Increased net revenues during the quarter were driven by the Pottery Barn, Williams-Sonoma, Pottery Barn Kids and West Elm brands.

Business Segments

Retail Stores (60.5% of 2009 revenue)

The retail segment has five merchandising concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Williams-Sonoma Home). As of January 31, 2010, Williams-Sonoma operated 610 retail stores, located in 44 states, Washington, D.C., Canada and Puerto Rico. This represents 259 Williams-Sonoma, 199 Pottery Barn, 87 Pottery Barn Kids, 36 West Elm, 11 Williams-Sonoma Home and 18 Outlet stores (which carry merchandise from all merchandising concepts).

In fiscal 2010, Williams Sonoma expects to decrease retail leased square footage by approximately 1% to 2% through the closure of 17 stores, including the permanent closure of 14 stores (5 Pottery Barn, 4 Williams-Sonoma, 3 West Elm, 1 Pottery Barn Kids and 1 Outlet) and the temporary closure of 3 stores (1 Pottery Barn, 1 Williams-Sonoma and 1 Outlet), partially offset by the addition of 10 stores, including 4 new stores (2 West Elm, 1 Williams-Sonoma and 1 Outlet) and 6 remodeled or expanded stores (3 Pottery Barn, 2 Williams-Sonoma and 1 Outlet). The average leased square footage for new and expanded stores in fiscal 2010 will be approximately 18,200 leased square feet for West Elm, 15,300 leased square feet for Pottery Barn, 6,500 leased square feet for Williams-Sonoma and 22,400 leased square feet for Outlet.

Williams-Sonoma: The original brand, Williams-Sonoma sells modish cookware, including pots, pans, utensils, flatware, glassware, and small appliances. Williams-Sonoma operates 259 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 years.[1] Williams-Sonoma, Inc. generally opens 1-3 new flagship stores per year.

Williams-Sonoma Home: In 2004, the Williams-Sonoma Home brand was started with the introduction of the Williams-Sonoma Home catalog. This premium brand, offering home furnishings and decorative accessories, extends the Williams-Sonoma lifestyle beyond the kitchen into every room of the home. In 2005, the company opened its first three Williams-Sonoma Home stores and, in 2006, launched the Williams-Sonoma Home e-commerce website. In fiscal 2009, however, the company decided that the future potential of this brand is limited. As part of the brand's restructuring, the company will market those merchandising categories that support bridal registry, expanded flagship and designer assortments through the Williams-Sonoma kitchen brand.

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 199 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 reaching a point of maturity at which its annual unit growth has slowed to 1-3%. [1]

Pottery Barn Kids: In 1999, Pottery Barn Kids, a retailer offering children’s furnishings and accessories, began with the introduction of the Pottery Barn Kids catalog. In 2000, the company opened its first Pottery Barn Kids stores across the U.S. and, in 2001, launched the Pottery Barn Kids e-commerce website and gift registry.

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 decor. This brand pays particular attention to green practices and strives to offer a collection made primarily from organic materials.[4] 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.

International: In 2001, Williams-Sonoma expanded the geographic impact of its brands by opening five new retail stores in Toronto, Canada and, as of January 31, 2010, it now operates 17 stores across Canada. In 2008, the company further increased its presence by opening two new retail stores in Puerto Rico, one Pottery Barn and one West Elm store. In addition, during fiscal 2009, Williams-Sonoma entered into a multi-year franchise agreement with the M.H. Alshaya Company to launch its portfolio of brands in the Middle East.

Direct to Customer Operations (39.5% of 2009 revenue)

Originating with the Williams-Sonoma flagship catalog “A Catalog for Cooks” in 1972, the direct-to-customer segment of the company sells similar products to those in retail stores through 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] This segment builds off of brand awareness established by the retail concepts and serves as a cost-efficient means of testing market acceptance of new products and new brands. 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.

Trends and Forces

U.S Housing Market Slump Stifles Sales

The housing market slump has hit the home furnishing retailer business hard. Increased foreclosure rates came to a head in August 2008 with the subprime mortgage crisis, resulting in a dramatic tightening of mortgage regulations and a corresponding decrease in the number of mortgages granted. The housing slump and mortgage crisis affect Williams-Sonoma twofold. First, fewer homes being purchased mean decreased demand for home furnishings; and second, the crisis contributed to the overall fall of the economy, leaving Williams-Sonoma customers with less purchasing power for furnishings and accessories in general.

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.[5] Net revenues and earnings are generally lower between January and September of each year,[5] while they rise during the end-of-year holiday season. In 2008, however, the recession negatively impacted revenues for Williams-Sonoma and its competitors. According to MasterCard Advisors, retailers' sales fell as much as 4 percent during the 2008 holiday season.[6] In Q4 2008, Williams-Sonoma reported a 16% decrease in net revenues to $752.1 million, compared with $895.1 million the previous year.[7]

E-Commerce Cuts Costs, Improves Supply-Side Efficiency

Williams-Sonoma's Internet channels assist the company not only by providing rent-free "real estate" from which to make additional sales, but also by allowing the company to test new products without incurring the costs associated with stocking them in-store. An increasing percentage of the company's net earnings depend on its ability to continue developing its Web presence, as "etailer" giants like Amazon.com consistently demonstrate year-over-year revenue growth and increasing retail market share.

Competition

Home Furnishings Retailers by Sales[1]
Company Sales ($ millions) # Stores
Wal-Mart (WMT) $22,120.0 3,443
Sears Holdings (SHLD) $12,855.9 2,338
Target (TGT) $10,996.0 1,448
Home Depot $10,386.5 1,906
Lowe's Companies (LOW) $10,167.1 1,385
Bed Bath & Beyond (BBBY) $6,617.4 888
CCA Global Partners $6,101.0 2,457
J.C. Penney (JCP) $4,179.6 1,033
Williams-Sonoma (WSM) $3,403.7 588
TJX Companies (TJX) $3,393.9 1,967

Substantial sales growth in the direct-to-customer industry within the last decade has caused an influx of new competitors and has heightened competition from established companies.[5] 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.[5] In addition to these larger competitors, Williams-Sonoma faces considerable competition from local furniture boutiques that also offer high-quality cookware and furniture. The company aims to distinguish itself through high quality merchandise, top-notch service, and attractive storefronts.[5]

  • Bed Bath and Beyond (NYSM: BBBY) is the top domestic merchandise retailer in the United States. Its total sales are almost double those of Williams-Sonoma. Bed Bath & Beyond offers less expensive products than Williams-Sonoma and generally caters to a younger demographic.
  • Pier 1 Imports (NYSM: PIR) is another leading home furnishings retailer with 1,122 stores. Pier 1 Imports has historically failed to match Williams-Sonoma’s sales per square foot.
  • Crate & Barrel is a smaller competitor (145 stores), but offers a similar style of furniture to Williams-Sonoma.



  1. 1.0 1.1 1.2 1.3 KeyBanc Equity Research
  2. 2.0 2.1 10-K 2008 WSM, p3
  3. Williams-Sonoma, Inc. Announces First Quarter 2010 Results and Raises Financial Guidance for Fiscal Year 2010
  4. Williams-Sonoma Website
  5. 5.0 5.1 5.2 5.3 5.4 10-K 2008 WSM, p5
  6. Reuters Dec 26, 2008
  7. DDI Magazine, Dec 8, 2008
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