Buy Williams Sonoma's Post-Earnings Discount Williams-Sonoma (NYSE: WSM) reported another quarter of above-expected growth proving once again the combination of its brands, merchandise, and eCommerce is a force consumers cannot resist. Oddly, the market was...

Williams Sonoma Is A Long-Term Winner For Income Investors

Williams-Sonoma (NYSE: WSM) reported another quarter of above-expected growth proving once again the combination of its brands, merchandise, and eCommerce is a force consumers cannot resist. Oddly, the market was expecting even more and has sent shares prices down more than 5.0% in after-hours trading. In our view, this is an irrational reaction from the market and one grounded in short-selling more than anything else.

The shorts have been out in force lately and Williams-Sonoma has not been wanting for their attention. The 8.2% short-interest says no few bears were waiting to take advantage of whatever market weakness they could find but we think this pullback will be very short-lived indeed. Williams-Sonoma is a high-quality dividend grower and share-repurchaser with a good and steadily improving outlook for growth.

Williams-Sonoma Beats And Raises, Again

The momentum in Williams-Sonoma's business was building even before the pandemic begin so it is no surprise to see it continue. The company's re-focus on eCommerce set it up perfectly for the pandemic and post-pandemic period. The company has gained market share in each of its brands and that is apparent in the results. The company reported $2.048 million in revenue for a gain of 16% over last year. This is on top of last year's 22.3% gain and growth is expected to continue. The revenue is also 360 basis points better than the Marketbeat.com consensus and the strength carried all the way through to the bottom line.

On a comp basis, systemwide comps are up 16.9% YOY and 41.3% on a 2-year basis with 2-year growth accelerating. All four segments posted growth with West Elm leading at 22.5% followed by Pottery Barn at 15.9%, Pottery Barn Kids at 16.9%, and core Williams-Sonoma sales up 7.6%. Sales at Williams-Sonoma are versus last year's 31% gain.

Margins and earnings are just as good. The company reported a 370 basis point improvement in gross margin and a 60 basis point improvement in the operating margin that left earnings well adobe expectations. The GAAP EPS of $3.29 is up 30% from last year while the $3.32 in adjusted EPS beat by $0.22. Looking forward, the company is forecasting momentum will continue and raised guidance. Execs now think revenue will come in the range of 22% to 23% from the previous range of high-teens to low-twenties. Based on our view of this market, the company will exceed those figures.

"As we enter the fourth quarter, we are seeing strong sales and margins continuing. We are thrilled with our customers' response to our holiday and gifting assortments, and we are ready to drive an outstanding finish to the year. With our strong results to date, our winning positioning in the industry, and our outperforming growth strategies, we are more confident than ever in the long-term strength of our business," says Laura Alber, CEO of Williams-Sonoma.

The Technical Outlook: Williams-Sonoma Pulls Back To Support

Shares of Williams-Sonoma have been trending higher since the COVID-bottom and recently reached ballistic proportion. With the price recently hitting a new all-time high and more than 1.% above the short-term moving average, a pullback in price action is less surprising than it could be. Now, with shares trading above the last critical support level, we see a buying opportunity opening up. Price action may pull back to the $200 but we view it as a very strong support level and one that should hold up. Longer-term, price action may consolidate until the next earnings report but we expect share repurchases, dividend growth, and results to drive this stock up by another couple of multiples, it's still that cheap.