By Wedbush Analysts
In the aftermath of the pandemic, which caused a surge in the housing market and an increased demand for home furnishing products, renowned home-goods retailer Williams-Sonoma Inc. is prepared for a return to what can be considered the new normal. This optimistic assessment was provided by Wedbush analysts on Thursday.
Despite earlier concerns voiced by Williams-Sonoma in November regarding consumers’ reluctance to invest in larger and pricier furniture items, the Wedbush analysts have upgraded the company’s stock rating from hold to their equivalent of a buy rating. They believe that Wall Street fails to fully recognize the chain’s ability to efficiently manage costs and enhance operating margins.
Closing the day with a 2% increase, Williams-Sonoma’s stock has shown an impressive growth of 57.3% over the previous 12 months.
The analysts expressed their belief that key drivers, such as spiking interest rates, declining existing-home sales, a shift in consumer spending towards services, and the unwinding of pent-up demand during the pandemic, are now reaching their bottom or reversing. As a result, they anticipate stronger demand for home furnishings in 2024.
Furthermore, the analysts anticipate a growth of at least low-single digits in retail sales for home furnishing this year. They attribute this positive outlook to Williams-Sonoma’s successful transition to online sales, along with their efforts to streamline shipping operations and enhance product assortment. The analysts also commend the company’s ability to maintain higher prices in an industry where discounts have become ubiquitous due to inflation-related challenges faced by retailers over the past two years.
The Changing Landscape of Home Furnishings
A recent analysis has shed light on the evolving trends within the home furnishings industry. Despite initial setbacks caused by the ongoing pandemic, experts indicate that major players like Williams-Sonoma are poised for a significant rebound. Analysts have observed a remarkable increase in operating margins, with projected figures reaching an impressive 16.9% by 2024. This positive outlook is further supported by flat same-store sales growth, a 2% increase in revenue, and a per-share profit of $15.71 – surpassing even Wall Street estimates.
However, it is worth noting that the road to recovery has not been entirely without obstacles. Williams-Sonoma experienced a minor setback when it adjusted its full-year projections due to hesitancy among consumers for purchasing larger-ticket items. Similarly, high-end furniture retailer RH recently reported an unexpected quarterly loss, citing a “frozen” housing market as the primary cause.
It seems that increasing prices for essential goods such as groceries and heating have compelled consumers to prioritize their spending, delaying purchases of luxury furniture items in the process. Additionally, rising home prices during the pandemic, coupled with higher mortgage rates, have deterred potential homebuyers from entering the housing market. However, there is cause for optimism as mortgage rates started decreasing toward the end of last year and have remained below 7% as of last month.
Freddie Mac’s chief economist, Sam Khater, corroborates this positive outlook by stating that lower rates are enticing previously hesitant homebuyers back into the market. Builders are already experiencing the beneficial effects of this trend. As evidence of the changing landscape, KB Home recently reported that consumers are responding favorably to the decline in mortgage rates.
All signs point to a promising future for home furnishings, with major companies adapting and becoming more efficient despite challenging circumstances. By understanding these shifting dynamics and remaining agile, industry leaders are set to thrive in the years to come.