Williams-Sonoma, Inc. (WSM, Financial) has investment appeal, in my opinion, after its 6% stock price fall in the past year.
The home products retailer is investing in its website, expanding internationally and improving its loyalty program.
Loyalty program
The company is improving the features of its loyalty program to increase its membership numbers. For example, in the fiscal 2019 third quarter, it increased its number of email marketing campaigns and held a larger number of events that offer discounts to its loyalty program members.
This contributed to an 800,000 increase in its number of loyalty program members in the third quarter. The program now has 7.2 million members who spend, on average, three times more than the rest of the company’s customers.
In addition, Williams-Sonoma relaunched its business loyalty program in the third quarter. It now includes seven different membership types to attract a wide range of businesses that operate in different sectors. This could increase the company’s repeat business levels.
Website investment
The retailer invested in improving its website in the third quarter. For example, it increased the speed of its website, improved the ease of navigation for its users and included more detail in its product descriptions.
In addition, the business integrated new technology within its website, which provides a greater level of personalization for its customers based on their past purchases and the purchases of other customers. This could contribute to an increase in the company’s average order value among.
Expansion potential
The business is expanding into new product ranges that could broaden its potential customer base. For instance, it launched a new range of furniture in the third quarter that is aimed at kids and teens. It is manufactured using recycled materials, which could appeal to the growing number of consumers who are becoming increasingly concerned about the environment.
The company also expanded its international operations. It now supplies retailers in New Zealand and Ireland and plans to expand into India in 2020. This could increase its sales prospects and reduce its reliance on its existing markets.
Potential challenges
The company’s outlook could be negatively impacted by the spread of the new coronavirus. Many of Williams-Sonoma’s products are produced in China, where many factories have been closed for the first quarter of 2020. This could hurt its financial performance in upcoming quarters due to supply chain issues.
The business may also continue to suffer from the impact of tariffs on its imports from China. They could lead to it experiencing lower sales if it decides to pass tariff costs on to its customers, or lower margins if it chooses to absorb them.
In response, the retailer has been gradually moving its production out of China. It is set to become less reliant on the country for the supply of its products, which could mitigate the impact of tariffs and the new coronavirus on its financial performance.
Additionally, it is implementing a greater amount of technology in its distribution centers. This includes automated packing for some of its products, paperless order processing and machine learning to reduce labor costs. These changes led to an increase in its gross margin in the third quarter.
Outlook
Market analysts forecast that Williams-Sonoma will report a 9.5% increase in its earnings per share in fiscal 2020. Its price-earnings ratio of 12.6 suggests that it offers good value for the money.
Disclosure: The author has no position in any stocks mentioned.
Read more here:
- Why Keurig Dr Pepper Can Deliver Stock Price Growth
- Why Revolve Group Has Turnaround Potential
- Why Dine Brands Offers Good Value
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here
