Williams-Sonoma sales will benefit from bigger holiday gatherings even after the guests go home
Shoppers pass in front of a Williams Sonoma store at The Mall at Short Hills shopping center in Short Hills, New Jersey.
Gabby Jones | Bloomberg | Getty Images
As bigger holiday gatherings return, a wave of party hosts are dusting off the champagne glasses, flexing new skills like breadmaking and showing off recipes that they learned during the pandemic.
For Williams-Sonoma and other retailers, that’s an opportunity to sell platters, kitchen appliances and more — and nudge people to put those items on their wish lists.
Williams-Sonoma, in particular, has been on a tear over the past year as stay-at-home orders turned many Americans into amateur chefs, inspiring them to pick up cooking and baking as hobbies and buy new furniture and decor. Along with its flagship banner, the parent company owns other brands like Pottery Barn and West Elm.
Shares of the company have more than doubled in value since January. The stock hit a 52-week high of $223.32 on Monday, but was recently trading Wednesday at around $210, giving it a market cap of about $15.6 billion. Yet the home retailer said Americans still have a big appetite for cooking, entertaining and sprucing up their homes. Those trends, it expects, will give it an opportunity that will last after the holidays are over.
In the coming years, Williams-Sonoma expects its annual revenue to grow at a mid-to-high single digit pace. It expects to hit $10 billion in revenue by 2024, as it benefits from its in-house design and investments in digital. Macro trends like a strong housing cycle will provide further support.
This year, growth will be even more robust. On Thursday, the retailer raised its fiscal 2021 outlook, predicting revenue will rise 22% to 23% from the prior year.
Impressing friends with cooking skills
Sales in recent weeks reflect that Americans are planning for a splashier Thanksgiving and bigger holiday parties, said Ryan Ross, president of the Williams Sonoma brand.
Shoppers are buying bigger tablecloths, more flatware and larger sets of wine glasses than they did a year ago, he said. Food orders have grown in size, too, with big turkeys selling faster than small ones and people getting more prepared meals or side dishes to serve. Plus, he said, as people become more confident in the kitchen, they are upgrading their tools, from pricier knife blocks to fancier bakeware.
“While the world is opening up, people are still loving to cook,” he said in an interview. “Once they know how to cook, they love to cook, and they want to impress their friends with their culinary skills.”
Williams-Sonoma CEO Laura Alber said people are eager to see family and friends again.
“Last year, was the year that the holidays were forgotten, pretty much,” she said in an interview on Friday with CNBC’s Jim Cramer on “Mad Money.” “Did you have turkey for two? It was a bit of a depressing season. This year, people are dying to get back together and celebrate and decorate their homes and gift giving and all of those great things that we didn’t get to do last year.”
Cooking has become a way to relax and wind down for people, Ross said.
“It becomes a release,” he said. “There is a sense of calming and hobby to cooking that while things are opening up and people are traveling, the appreciation for food and the transparency for what’s in your food is not going to change.”
Furnishing homes ‘in piecemeal’
Cristina Fernandez, a senior research analyst at the Telsey Advisory Group, said the company has room to run with furniture sales, in particular. Many Americans are still decorating the larger homes or second homes that they purchased during the pandemic.
“When people move, typically they furnish homes in piecemeal,” she said. “They’ll go room to room. They’ll do the kitchen and then say ‘I have a nice kitchen, let me do the next room.'”
She raised Williams-Sonoma’s price target after it reported earnings last week from $220 to $250, which is about 19% above where it’s currently trading. The firm rates the company outperform.
Fernandez said the company has had an advantage because home goods demand has been so hot. It has been able to pull back on promotions.
Going forward, the flagship brand faces tougher comparisons and could get hurt in the year ahead if consumers trade down to lower-priced furniture and cookware because of inflation or other spending priorities, she said. Its furniture line, Williams Sonoma Home, tends to have a higher price point than Pottery Barn and West Elm.
In the latest quarter, its furniture-focused brands saw the fastest growth. West Elm’s fiscal third-quarter same-store sales rose 22.5% from a year-ago, while Pottery Barn Kids and Teen jumped 16.9% and Pottery Barn rose 15.9%. Sales at Williams Sonoma stores open at least 12 months and its e-commerce business rose 7.6% year over year in the same period. But that was on top of a 30.4% jump last year.
All together, the parent company logged a same-store sales gain of nearly 17% for the three-month period, and topped Wall Street’s estimates.
Fernandez expects Williams Sonoma’s flagship brand can propel sales by expanding its private label products and exclusive merchandise, such as meat rubs and seasonings from grilling company Traeger or premium cookware endorsed by celebrity chefs like Bobby Flay.
Earlier this month, Williams Sonoma launched a membership program called Williams Sonoma Reserve to keep customers engaged. Members receive free shipping for many items, access to a recipe app and virtual cooking classes and events with celebrity chefs like Ina Garten. The subscription service costs $99 for a year. Customers can also subscribe to just the recipe app, which costs $39.99 and includes how-to videos.
Cookware sits on display at a Willams-Sonoma retail store in Corte Madera, California.
David Paul Morris | Bloomberg | Getty Images
Gearing up for guests
Retailers that sell home goods will have multiple ways to cash in over the holidays, said Joe Derochowski, home industry advisor for The NPD Group. The initial wave will come from consumers who spring for new coffeemakers, cookie cutters and more as they gear up for guests’ arrival.
More sales could come as people request those items as gifts or buy them for others. And at parties, people may discover an appealing gadget or kitchen tool after hearing friends or family rave about it — and later decide to buy it, he said.
Sales of hosting-related items, such as glassware, platters and food storage for leftovers, tend to pop in early December, he said. However, retailers will have to find ways to keep sales going as consumers spend more time traveling, dining and doing other activities outside of the home next year.
Home industry spending by unit is expected to drop by 5% next in 2022 compared with 2021, according to NPD projections. It will still be about 14% higher than 2019 levels, however. The category for NPD includes housewares, kitchen electronics, tools for the home environment like vacuums and air purifiers and personal care products like electric toothbrushes. It does not include furniture or home decor.
NPD’s Derochowski said convenience-related items could be a potential growth area. He said people may buy automated espresso machines, robotic vacuums or multi-cookers like air fryers, slow cookers and toaster ovens as they get busier again.
“The convenience level in our life has been dialed up,” he said.
As more people entertain this holiday season, they may also give more gifts of homemade cookies and jams. Kris Malkoski, the CEO of home solutions for Newell Brands, said she expects to see sales of Rubbermaid’s Brilliance food storage line and Ball’s mason jars pop.
Shift to higher quality
Other retailers have also pointed to a pent-up desire for Americans to host family and friends over the holiday season and beyond. Lowe’s and Home Depot have expanded their selection of home decor and shown it off on websites and in ads.
Even consumer electronics retailer Best Buy said it wants to be more in home furnishings. Earlier this month, it acquired Yardbird, a direct-to-consumer brand that sells outdoor furniture, such as patio sets, fire tables and wicker chairs.
These retailers are competing in a very fragmented market. Williams-Sonoma was able to capitalize when one of its rivals, luxury kitchen retailer Sur La Table, filed for bankruptcy during the pandemic and closed many of its stores.
Real estate trends have also worked in retailers’ favor — especially as more millennials become homeowners. Alber said hybrid work routines lift company sales, too.
“If you’re at home even one day a week or a half day, you’re working shorter hours and coming home and doing some of it early morning, you are going to care more about what your house looks like,” she said on “Mad Money.”
Newell Brands, a company that owns Calphalon, Ball and Rubbermaid, said consumers have gravitated toward more high-end kitchen supplies. Its products are sold by stores including Bed Bath and Beyond, Walmart, Costco and Williams Sonoma.
“What I’ve seen just across the board is this gravitation toward more middle price point and premium price point or higher quality feature products,” said Kris Malkoski, the company’s CEO of home solutions.
She said that’s even the case with food storage, with more consumers buying more elegant-looking glass containers from Rubbermaid or higher-tech vacuum sealers from FoodSaver.
And she said she expects Ball mason jars and other storage containers to pop in sales this holiday season. Many of the same customers who buy cookware have missed making rhubarb jam, cookies or other homemade food gifts for family and friends during the pandemic.
“Foodies really love to give something they have made as a gift,” she said.
She expects the launch of more sophisticated, innovative kitchenware will drive sales in 2022. Plus, she said, inflation may actually inspire more Americans to keep up their meal prep to save money.
Owning the entertaining space
Food and furniture are two areas where Williams Sonoma’s flagship brand expects to expand, Ross said. Its stores and website carry numerous shelf-stable food items, from cake mixes to pasta sauces, with the Williams Sonoma brand. It also ships prepared food to people’s doorsteps. And it carries gourmet products, sometimes with a well-recognized brand like tequila company Casamigos.
Consumers can expect to see an even wider variety of food, such as more international flavors and cocktail mixes in the coming year, Ross said.
The flagship brand has also sharpened the aesthetic of its furniture brand, Williams Sonoma Home, to be “more refined and curated” and become “an online luxury furniture destination,” Ross said.
He said it’s a natural fit as people get ready to show off their homes over the holidays and beyond.
“If you’re entertaining, you need a living room. If you’re entertaining, you need a guest room,” he said. “If you’re entertaining, you need a dining table. If you’re cooking, you need your kitchen outfitted — so barstools, you need lighting, you need the cookware, you need the tabletop that goes on top of the dining table. So really our perspective is owning cooking and entertaining.”