Why this stock hit an all-time high

specialty retail stores Williams-Sonoma (NYSE:WSM) had the biggest gain on Wednesday, rising 20% ​​on the day to $289 per share, hitting an all-time high in the process. The main catalyst was a solid earnings report that showed the homewares and products retailer significantly beat past earnings and revenue estimates.

Williams-Sonoma also rewarded investors with a massive 26% dividend increase, to $1.13 per share, marking the 18th consecutive year of annual dividend increases dating back to 2006. Let’s review the results and see if investors can expect more after this respectable stock. Price rally.

Huge dividend increase

The past few years have been a tumultuous time for specialty retailers. But Williams-Sonoma, whose brands also include West Elm and Pottery Barn, has been one of the most consistent performers even in a difficult environment for home furnishings sales.

“We performed better in 2023 despite the weakest housing market in decades and geopolitical instability,” President and CEO Laura Alber said in the fourth quarter earnings report. “Even though this has put pressure on our sales trends, we have remained focused on full-price sales, supply chain efficiency and best-in-class customer service.”

Williams-Sonoma’s revenue fell 7% year-over-year to $2.28 billion in the fiscal fourth quarter that ended Jan. 28, but the results were better than expected. However, cost of goods sold fell significantly to $1.23 billion from $1.44 billion in the same quarter a year ago, boosting the retailer’s total profit by about 4% to $1.05 billion.

The company’s gross margin increased 480 basis points to 46%. Margin improvement can be attributed to increased merchandise margins and cost savings resulting from supply chain efficiencies. In conclusion, Williams-Sonoma’s net income was essentially flat at $354 million, or $5.53 per share.

The company has also dramatically improved its liquidity over the past year, with cash and equivalents increasing from $367 million to $1.3 billion and operating cash flow increasing to $1.7 billion from $1.1 billion a year ago. This allowed Williams-Sonoma to give investors a hefty 23 cent dividend increase, bringing the quarterly dividend to $1.13 per share for a 1.5% yield.

The retailer also maintains a low payout ratio of 24%. This means there’s enough excess cash to sustain over 18 years of annual dividend increases. Williams-Sonoma also approved a $1 billion stock repurchase plan.

“After a successful conclusion to 2023, we are proud to have increased our quarterly dividend by 26% and expanded our share repurchase program by $1 billion,” said Alber. “These actions reflect our ongoing commitment to maximizing shareholder value and delivering returns to our shareholders.”

Can you run more space?

Williams-Sonoma expects operating margins to improve to 16.5% to 16.8% in fiscal 2024. This would be higher than 16.4% in fiscal 2023. The company expects net revenue growth of -3% to +3% this year. . Over the long term, the company forecasts mid-to-high single-digit annual net income growth with operating margins in the mid-teens.

Wednesday’s rally puts Williams-Sonoma stock up more than 41% year to date, and over the past year the stock is up 141% as of March 13.

The company’s valuation remains relatively reasonable, trading at about 16 times future earnings, compared with 9 times a year ago. Analysts have set a median price target of $240, which would represent a 16% decline from the current price. I think that might be too harsh, and the stock could earn a slight price target upgrade after this report, even if the company’s earnings growth slows.

Overall, Williams-Sonoma is a good company with an excellent dividend and a stock that has returned an average of 17% annually over the past 10 years. Still, given its solid outlook, investors probably shouldn’t expect the types of returns the stock has posted over the past year. It’s a solid holding, but it may not be the best time to buy at an all-time high.