Williams-Sonoma Is Compelling at This Price

Given the cadence of promotional spend by retailers recently, we expected weak gross margin results at narrow moat

We plan to lower our 2017 topline modestly, from 5.5% previously to 3.2%, as the housing cycle strength moderates, leveling off spending and revenue growth, which averaged 8% in 2010-2015. Admittedly, we were most disappointed that 2017 will be another year of depressed operating margins, with management forecasting 9.4%-9.6% versus our forecast for 10%. With 2017 revenue growth at a low-single-digit pace, and EPS rising 3% at the midpoint of guidance, the firm’s three-year goals calling for mid- to high-single-digit sales and low-double-digit or better EPS growth remains elusive. Considering the persistence of price competitiveness, our model incorporates mid-single-digit top-line and high-single to low-double-digit earnings growth longer term, lower than long-term company targets. In turn, our long-term operating margin forecast is for more than 11%, helped by leverage from scale and better merchandising.

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