The company’s profitability is still surprisingly strong.
Shares of retailer Williams-Sonoma (WSM -0.25%) went up 15.3% in September, according to data provided by S&P Global Market Intelligence, which was enough to easily outpace the 2% gain for the S&P 500. But when looking at August and September together, Williams-Sonoma stock was completely flat. In other words, shares fell sharply in August before merely bouncing back in September.
Here’s why it dropped it August: Williams-Sonoma’s management reported financial results for its fiscal second quarter of 2024 on Aug. 22, reducing its full-year revenue expectations at that time. Management was hopeful it could muster up to 3% year-over-year growth this fiscal year. But now it believes revenue will be down at least 1.5%.
With this context, here’s why it bounced back in September: Williams-Sonoma is only expecting a modest dip in revenue, but its profitability is another thing entirely. It had guided for a full-year operating margin of 17% to 17.4%. But in Q2, it raised full-year guidance to 17.4% to 17.8%.
In other words, Williams-Sonoma could wind up earning about the same operating profit even though its revenue could drop. This had several Wall Street analysts highlighting this stock in September and it explains why shares were up during the month.
A surprising development in 2024
The Williams-Sonoma company owns retail chains Williams Sonoma, Pottery Barn, and West Elm. As a home goods retailer, its products were in high demand when people were sheltering at home during the COVID-19 pandemic, which sent revenue soaring. Revenue has since pulled back from all-time highs. But this is understandable considering people are getting outside more and have just recently spent money on their homes.
WSM Revenue (TTM) data by YCharts
However, not only did revenue spike higher, but Williams-Sonoma’s operating margin also skyrocketed because of the pandemic. And with revenue now cooling off, it seemed the company’s profitability would normalize.
But Williams-Sonoma’s operating margin continues to tick higher. And that’s an extremely welcome development for shareholders.
What now?
Williams-Sonoma stock usually isn’t a high-growth opportunity so those profits are important. Management does buy back stock, which is helpful for total returns. But the dividend growth has also been impressive in recent years for those who like dividend stocks.
WSM Dividend data by YCharts
On Sept. 12, Williams-Sonoma announced that its next dividend of $0.57 per share will go out on Nov. 22 for investors holding shares on Oct. 18. For those invested for the dividend, it’s another reason to keep holding on to this stock even after its 15% jump in September.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Williams-Sonoma. The Motley Fool has a disclosure policy.
