(By Balachander) Williams-Sonoma Inc. (NYSE:WSM) shares were upgraded to "Buy" from "Hold" by Deutsche Bank analyst Mike Baker, who said the company balances merchandising strength with better analytics to drive consistent top line growth and improving margins.
The analyst, who also raised price target on the stock to $48 from $38, cites the upgrade to consistently strong comps driven by several near term merchandising initiatives, top line support from improvements in housing and related home furnishing sales and an inflection point in gross margin driven by improved promotional efficiency and private label.
Accelerating sales growth supported by internal merchandising strength and macro factors Brand comps have been in the 5.5 percent - 7.5 percent range for 5 quarters in a row, including an acceleration to 7.4 percent last quarter, Baker said.
The analyst looks for continued strength from near term merchandising initiatives, above average e-commerce growth and support from improving industry sales as a result of better housing markets. Merchandising initiatives include adding more seasonal and gift giving products and the launching of an additional brand this fall along with several other programs like the Starbucks Verismo launch, Pottery Barn Dorm and Agrarian, Baker said.
Baker wrote that WSM also is making headway in initiatives around increasing private label and continues to leverage its occupancy. These help offset pressures from shipping promotions. The continued shift to more on line sales also helps contribute to better operating margins.
On Wednesday, the stock rose 1.87 percent to trade at $41.99. Shares have been trading in the 52-week range of $28.53 to $42.94.