Sunday Edition: Don’t Fear The Reaper. It’s Not Coming For This Retailer.

July 23, 2017

Sunday Edition: Don’t Fear The Reaper. It’s Not Coming For This Retailer.

Looking at the retail sector over the last couple of years, it’s not difficult to imagine the grim reaper (or maybe just Amazon) coming for what remains of shopping mall staples and other brick-and-mortar retailers.

The number of bankruptcies and closures is astounding. So far this year, more than 300 retailers have filed for bankruptcy, up 31% since this time last year. While most of those filings were from small Mom & Pop stores, there are some pretty big household names on the list too.

Gymboree. Payless ShoeSource. Gordman’s. RadioShack. Teen clothing retailer Wet Seal. Women’s retailers The Limited and Bebe.

Not all of these brands will eventually go out of business as most filed for Chapter 11 allowing them to continue operating while they restructure their debt, though rising interest rates will certainly present complications, but that aside, the sector is on course for a record number of store closings in 2017.

The communal shopping experience of yesteryear has given way to an e-commerce force that can’t be competed against, and the convenience of being able to shop from a screen has made companies like Amazon into titans as traditional retailers see fewer and fewer customers and close more and more stores.

Some have dubbed this the “retail apocalypse,” but I’m more inclined to believe that what has been happening in the sector is more akin to a market correction that’s weeding out the companies that simply can’t compete in the digital-driven market of today.

There has been plenty of speculation on what companies will go under next, so I won’t focus on that today. Instead, I want to take a look at a company that I believe will come out the other side.

Today we’re talking about Williams-Sonoma (NYSE: WSM).

If you’ve ever shopped for kitchen gadgets, you likely are familiar with the name Williams-Sonoma and with their storefronts full of high-end small appliances (who doesn’t need a $400 immersion blender?!). But Williams-Sonoma Inc. has several recognizable names under its umbrella, some of which happen to be billion dollar brands.


Source: Williams-Sonoma Investor Relations.

Pottery Barn makes up 40% of WSM’s $5.1 billion in revenue, but both Williams-Sonoma and West Elm—a modern home furnishings brand—had around $1 billion each in revenue in FY16, and Rejuvenation and Marks & Graham, while smaller and newer brands, have grown revenue by more than 25% for the last 4 years.

What I like so much about WSM is how successful they’ve been at developing a multi-brand, multi-channel business.

While so much attention has been paid to the rise of Amazon and the destruction of traditional retailers, this company has quietly and successfully built an e-commerce business that accounts for more than $2.6 billion in revenue, more than half of total revenue, and with an annualized growth rate of 26% since 2000.

WSM has truly embraced the broad shift in shopping to the web, but it has also leveraged its physical store footprint to drive overall sales. The company’s in-store strategy is influenced by it’s online presence, and has been helped by the fact that consumers want to buy things like furniture in person.

The company is virtually debt-free, has a P/E of 13.2, its price to book is 3.23, and its dividend is 3.44%. And, technically speaking, it looks like it is set up for a great trading opportunity. Let’s take a look.


Source: TradingView.

WSM looks to be in a falling wedge pattern, a pattern we discussed back in May.

As a refresher, a falling wedge is a bullish pattern where the price of a stock bounces between two trend lines, testing both the resistance and support lines at least twice, before it breaks out upwards through the wedge, moving into a new uptrend.

In the case of WSM, the support line has now been tested three times, and the resistance has been tested twice. As the support line is being tested today (Friday, July 21), I expect the price to move up to retest and potentially break out of the resistance line of our wedge. If the price retests the resistance line and moves back down, another retest of the support line would make for another great buying opportunity.

Once the price closes above the resistance line, WSM should begin a new uptrend. I’ve set my minimum price target to $63 for this move, which is nearly 40% above today’s price.

As always, do your due diligence before taking a position in WSM, though I think—given this company’s commitment to its multi-channel, multi-brand strategy—this is a rare gem in the retail sector that promises to be around for years to come.