Morningstar | Healthy Brand Comps Signal Brand Equity Persists at Williams-Sonoma, Offering Profit Growth
Williams-Sonoma has carved out a solid niche in the fragmented $121 billion domestic home furnishing market, launching most of its brands organically in underserved segments. The firm's brand intangible asset has historically been the supporting factor in its top- and bottom-line growth, as its ability to drive repeat business relies on customer loyalty and smart marketing and merchandising. Williams-Sonoma is in a good position to outperform its competitors and hold its share of the market. We think the firm still has access to some of the best analytics in retail. Williams-Sonoma relies on its e-commerce business (54% of total 2018 sales) to build the brand in the most cost-effective way and leverage costs, driving operating margin improvement (e-commerce EBIT margins are 21% versus 9% in retail). The firm should enjoy opportunities to build the brand globally while improving its cost structure, owing to an improving supply chain and distribution network as a result of direct sourcing and furniture delivery operations. Additionally, the firm's expanding global footprint could help improve sourcing and distribution costs in the long term, improving operating margins. Global expansion allows access to a wider profile of consumer preferences, leading to better local merchandising and marketing, which could facilitate higher unit sales as supply increasingly matches demand. Becoming a faster and more dynamic merchant through supply chain and inventory optimization could boost operating margins, which we forecast will rise to about 10% over the next decade from 8.5% in 2018. In the long term, our main concern is that performance is tied to housing market conditions. Further, we don't believe the company is insulated from the proliferation of e-commerce peers such as Wayfair and Amazon pushing harder into the home furnishing space, pressuring operating margin potential structurally below our prior forecast of more than 10%. Disciplined capital allocation and controlled costs allowed Williams-Sonoma to deliver an average adjusted return on invested capital of 18% over the past five years, about the 15% average level we forecast over the next five years.Williams-Sonoma is a retailer of products for the home. The company has two reportable segments, e-commerce and retail. The e-commerce segment has the following merchandise strategies: Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams Sonoma Home, Rejuvenation and Mark and Graham, which sell the company's products through its e-commerce websites and direct-mail catalogs. The retail segment, which includes the company's franchise operations, has the following merchandise strategies: Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation, which sell the company's products through its retail stores.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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