Williams-Sonoma poised for rebound after pandemic-era ‘consumer hesitancy’
As the pandemic fuels the housing market and fuels a surge in demand for all the things people buy to decorate their homes, home goods retailer Williams-Sonoma Inc. is ready to return to whatever we now call normal. Wedbush analysts said on Thursday:
That assessment was made despite warnings from Williams-Sonoma WSM.
In November, we talked about consumers still being reluctant to spend on larger, more expensive furniture items. Wedbush analysts upgraded the stock to a buy rating, saying Wall Street is underestimating the chain’s potential to manage costs and increase operating margins.
Shares of Williams-Sonoma closed up 2%. The stock has risen 57.3% over the past 12 months.
“Demand for home improvement furniture has weakened in 2023 due to surging interest rates, a sharp decline in existing home sales, a shift in consumer spending to services, and lower demand throughout the pandemic, but we expect many of these key drivers to bottom out or to bottom out. I believe there is. This will lead to increased demand in 2024,” analysts said.
Analysts say they expect home furnishings retail sales to increase by at least a single digit this year. And they said the shift to online sales has helped Williams-Sonoma, along with its efforts to strengthen its delivery operations and product assortment. Analysts added that the company has demonstrated some ability to keep prices higher in an industry where discounts have been surging for nearly two years as retailers compete for customers struggling with inflation.
“We expect some of these costs to reemerge in a more normalized environment, but when considered alongside the sales margin tailwinds that are flowing now, we believe these dynamics lend credence to the company’s claim that it is now significantly more efficient and efficient. It would have been a more disciplined company offering than past downcycles,” the analysts said.
Putting all this together, analysts expect same-store sales growth, 2% sales growth, and earnings per share of $15.71, as well as operating margins rising to 16.9% in 2024. This figure is well above the Wall Street consensus.
Still, when Williams-Sonoma reported quarterly results in November, it lowered its full-year outlook and cited “ongoing consumer hesitancy” to buy big-ticket items. luxury furniture chain RH RH;
Last month, the company posted an unexpected quarterly loss, with management blaming a “frozen” housing market.
As the prices of essential items such as groceries and heating bills have risen, many consumers have stopped buying items such as furniture over the past two years. Home prices soared during the pandemic’s surge in home purchases, and higher mortgage rates since have left many potential homebuyers out of the housing market. However, this ratio began to decline at the end of last year and remained below 7% as of last month.
Sam Khater, chief economist at Freddie Mac, said last month: “Low interest rates are bringing potential homebuyers who previously sat on the sidelines to return to the market, and builders are already starting to feel the positive effects.” He said.
With that in mind, the housing construction company KB Home KBH
It said on Wednesday that consumers are “reacting favorably to the recent decline in mortgage rates.”
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