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Why Is Williams-Sonoma (WSM) Stock Soaring Today

StockStory - Mon Sep 25, 2:24PM CDT

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What Happened:

Shares of kitchenware and home goods retailer Williams-Sonoma (NYSE:WSM) jumped 10.9% in the afternoon session after private equity firm Leonard Green took a 5% stake in the company. This can be considered a vote of confidence from a savvy investor and could boost Wall Street's optimism regarding the stock. It also raises the prospect of a future acquisition as private equity companies tend to prefer controlling interests in companies to improve operations or management.

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What is the market telling us:

Williams-Sonoma's shares are quite volatile and over the last year have had 11 moves greater than 5%. But moves this big are very rare even for Williams-Sonoma and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was about one month ago, when the stock gained 5.54% on the news that the company reported second quarter results that beat analysts' EPS expectations and raised its operating margin projections for the full year. On the other hand, its revenue missed Wall Street's estimates, driven by underperformance at Pottery Barn and West Elm, and it lowered its full-year sales forecast. Lastly, management highlighted the challenges encountered during the quarter and the strategies implemented to address them. They commented, "We achieved these results against an increasingly promotional environment and softening industry metrics by focusing on regular price selling, driving improved customer service and controlling costs." Overall, the results could've been better, but the market is likely reacting favorably to its better-than-expected profitability.

Williams-Sonoma is up 37.2% since the beginning of the year. Investors who bought $1,000 worth of Williams-Sonoma's shares 5 years ago would now be looking at an investment worth $2,390.

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