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Why Williams-Sonoma Stock Jumped This Week

Motley Fool - Fri Mar 15, 7:46AM CDT

Investors decided to pile into Williams-Sonoma (NYSE: WSM) stock this week. Shares jumped 20% through Thursday trading compared to a 0.4% uptick in the wider market, according to data provided by S&P Global Intelligence. The retailer's shares are now up a robust 41% so far in 2024 and have more than doubled in the past year to easily eclipse the pandemic highs from late 2021.

This week's rally was sparked by good news on the earnings front, although the chain still has work to do in its recovery plan.

Mixed results

Williams-Sonoma announced generally positive fourth-quarter results before the market opened on Wednesday. Sales shrank, as they have for several consecutive quarters as spending slowed in the home furnishings market this past year.

But the slump was more modest than investors had feared, landing at a 7% decline while management had projected losses between 10% and 12%. "We are pleased with our strong finish to 2023," CEO Laura Alber said in a press release.

Investors were even more pleased to see that Williams-Sonoma was able to maintain its pricing power even while many peers slashed prices. In fact, gross profit margin jumped by 5 percentage points to 46% of sales, reflecting higher prices and declining expenses in areas like transportation. This success allowed operating income to rise to 16% of sales for the full 2023 fiscal year.

Looking ahead

2024 won't look the same as this past year did. Williams-Sonoma is calling for flat sales, in fact, compared to last year's 10% drop. There's stability ahead for earnings as operating profit margin settles at about 16% of sales.

The retailer has a good chance at continuing to increase profitability in the coming quarters given its slim inventory levels. Look for more progress along these lines to support solid returns for investors even from the stock's current elevated valuation.

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Williams-Sonoma. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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