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Impressive Q1 Earnings Boost William-Sonoma’s Valuation Multiple

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Jun. 3 2019, Published 6:03 a.m. ET

Stock performance

William-Sonoma (WSM) posted first-quarter earnings after the market closed on May 30. For the quarter ended on May 5, the company reported adjusted EPS of $0.81, outperforming analysts’ estimate of $0.69 by 17.4%. Also, the company’s revenue of $1.24 billion was slightly higher than analysts’ expectations. After posting its first-quarter results, the company’s management raised its EPS guidance for 2019, citing a strong first-quarter performance and also the strength seen at the beginning of the second quarter.

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The strong first-quarter performance and the raised EPS guidance for 2019 appear to have contributed to a rise in WSM’s stock price. On May 31, WSM stock rose 13.4%, increasing its returns for the year to 16.0%. This year, WSM has outperformed the broader equity market and its peers. YTD, the S&P 500 Index has returned 9.8%, while peers Bed Bath & Beyond (BBBY) and RH (RH) have returned 12.1% and -28.9%, respectively.

Valuation multiple

The surge in WSM’s stock price has also raised its valuation multiple. On May 31, the company was trading at a forward PE multiple of 12.4x compared to 11.0x before the announcement of its first-quarter earnings. On the same day, peers BBBY and RH were trading at a forward PE multiple of 6.2x and 9.7x, respectively. The company’s compelling and differentiated experience has led to a higher customer acquisition, which appears to have increased investors’ confidence, leading to an increase in the company’s stock price and its valuation multiple.

Also, on May 31, WSM was trading at 12.6 times analysts’ 2019 EPS estimate of $4.66, and 12.0 times analysts’ 2020 EPS estimate of $4.87 with its EPS expected to rise by 4.4% in 2019 and 4.5% in 2020.

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