Brand momentum and market share gains drive Williams-Sonoma's revenue acceleration; Goldman Sachs raises price target to $279

Overview

The report reviews Williams-Sonoma's second-quarter results, focusing on accelerating comparable sales, growth across brands, the impact of tariffs and supply chain efficiency on gross margin, and the raised FY26 guidance and earnings forecasts. Goldman Sachs believes brand momentum, product innovation, collaborations, channel execution, and store expansion are enabling the company to continue gaining market share, and therefore reiterates its Buy rating and raises its price target.

Core views

Williams-Sonoma rose 1.2% following strong second-quarter results that exceeded expectations, while the S&P 500 was broadly flat over the same period. Goldman Sachs upgraded the company to Buy in April based on its core view that brand momentum, new collaborations, product innovation, and store growth would accelerate revenue growth; this quarter's results reinforced that view. Comparable sales increased 6.2%, above Goldman Sachs' forecast of 5.0% and the FactSet consensus of 4.5%, while the home furnishings industry was flat overall. Growth spanned furniture and non-furniture, direct e-commerce, and physical retail. The company continued to maintain full-price selling in a promotional environment, leading Goldman Sachs to believe that its market-leading position and market share gains remain intact. By brand, Pottery Barn's comparable sales increased 5.1%, with two-year stacked growth of 6.2%, above the first quarter's 3.0%. Growth was driven by new products, product innovation, collaborations, and an improved digital shopping experience, while the furniture category also improved. Management was optimistic about the fall collection. Pottery Barn Children grew 3.5%, supported by baby and nursery products and collaborations including Pink Palm Puff, Nuna, and LoveShackFancy, while Dormify also received positive customer feedback. West Elm grew 6.4%, with new furniture and non-furniture products driving double-digit growth in its new summer and fall collections. The Pierce & Ward and Emma Chamberlain collaborations exceeded expectations and attracted younger customers. The core Williams-Sonoma brand delivered 7.6% comparable sales growth despite a high prior-year comparison of 5.1%, benefiting from its product assortment, price architecture, and customer engagement generated by culinary events. Other businesses also demonstrated broad-based growth. B2B revenue increased 14.5%, including 20% growth in the contract business and 12% growth in the trade business, reaching a record quarterly level and gaining momentum across hospitality, restaurants, multifamily housing, education, and entertainment. Rejuvenation, Mark and Graham, and GreenRow also continued to achieve double-digit growth during the quarter. These figures support Goldman Sachs' view that growth is not dependent on a single brand or category. Gross margin was the quarter's main shortfall. Excluding tariff refunds, adjusted gross margin was 45.5%, slightly below Goldman Sachs' forecast of 45.6% and the market consensus of 45.9%. Merchandise margin declined 230 basis points, primarily due to tariffs. Supply chain efficiency contributed 30 basis points and occupancy cost leverage contributed 40 basis points, partially offsetting the pressure. Within supply chain improvements, lower shrink provided a 25-basis-point benefit, while the remaining efficiency gains were offset by higher fuel costs, which management said had an impact of tens of basis points. Management believes the second quarter represented the peak impact of tariff costs and expects pressure to ease in the second half as comparisons increasingly include last year's tariff impact. The third quarter will begin overlapping with the prior-year tariff impact midway through the quarter, while the fourth quarter will receive the full year-over-year easing benefit. However, most of this benefit may be offset by the high comparison resulting from a 150-basis-point shrink accrual benefit in the fourth quarter of FY25. Additional improvement opportunities include increasing inventory accuracy—which management views as the largest opportunity—reducing promotional activity, and creating sales leverage through improved customer service metrics. Therefore, gross margin recovery depends not only on tariffs but also on supply chain and operational execution. Based on business momentum, the company raised its FY26 revenue growth guidance from 2.7%-6.7% to 4.7%-7.2%, comparable sales growth guidance from 2.0%-6.0% to 4.0%-6.5%, and operating margin guidance from 17.5%-18.1% to 17.8%-18.2%. This guidance excludes tariff refunds. At the midpoint, second-half operating margin is now expected to improve by 30 basis points year over year, which management believes reflects the operating strength of the core business. Categories and brands such as Pottery Barn still have room for improvement, and new collaborations are expected to sustain growth momentum. However, management also emphasized that collaborations are not the primary source of core comparable sales growth; more important drivers of the underlying business are new products, brand storytelling, and improved channel execution. The long-term growth thesis also includes market share gains and store expansion. Management compared the company's approximately $8 billion business with a total addressable market of approximately $820 billion and believes substantial growth potential remains. Over the next several years, it plans to increase store counts by 1%-3% across brands and continue identifying whitespace opportunities in underpenetrated areas. International website traffic also provides supporting evidence: Pottery Barn's website traffic grew year over year in Canada and the United Kingdom, as well as Canada and Mexico, with UK website traffic increasing by more than 500% year over year. West Elm's website traffic also maintained strong growth, particularly in Canada. Goldman Sachs accordingly raised its earnings forecasts: its FY26 comparable sales growth forecast increased from 5.1% to 6.3%, its operating margin forecast increased from 18.1% to 18.2%, and its FY26 EPS forecast increased from $9.54 to $9.66. Driven by continued business momentum and higher net sales forecasts associated with stronger store growth, FY27 and FY28 EPS forecasts were raised by 4.5% and 5.3%, respectively, to $10.89 and $12.23. On valuation, Goldman Sachs reiterated its Buy rating and raised its 12-month price target from $261 to $279. The price target reflects higher earnings forecasts and continues to apply relative P/E multiples of 100%, 110%, and 115% under bear, base, and bull scenarios, respectively, together with a market P/E of 22.6x, previously 22.7x. The report also notes that WSM currently trades at 23.3x next-12-month earnings, above its three-year average of 18.6x and five-year average of 15.3x. Therefore, if demand, margins, or the promotional environment fall short of expectations, the elevated valuation could amplify downside risk.

Analysis framework

Goldman Sachs first compares second-quarter comparable sales, gross margin, and market performance with its own forecasts, FactSet consensus, and industry trends, and then breaks down the sources of growth by brand and channel. It subsequently analyzes the basis-point contributions and second-half timing of tariffs, shrink, fuel, occupancy costs, and supply chain efficiency to gross margin, and revises its FY26-FY28 sales, margin, and EPS forecasts based on management's raised guidance. Finally, it determines the 12-month price target using relative P/E scenarios and the market P/E, while framing downside risk through historical valuation and operating uncertainty.

Methodology notes

• Valuation MethodPE/PEG valuation

  Relative P/E Scenario Valuation

  Using the market P/E as a reference, the report applies relative P/E multiples of 100%, 110%, and 115% to the bear, base, and bull scenarios, respectively, and combines them with the raised earnings forecasts to determine a 12-month price target of $279.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Williams-Sonoma Inc. (WSM)

  The report believes brand momentum, product innovation, collaborations, channel execution, B2B growth, and store expansion are accelerating comparable sales and driving market share gains.

  Strengths

  Broad-based growth across multiple brands and categories, continued full-price selling in a promotional environment, and further opportunities in supply chain efficiency, store whitespace, and improved customer engagement.

  Weaknesses

  Tariffs placed significant pressure on merchandise margin, while fuel costs offset some supply chain efficiency gains.

  Comparison

  Second-quarter comparable sales increased 6.2%, above Goldman Sachs' and market expectations and significantly stronger than the flat home furnishings industry; however, the 23.3x next-12-month P/E is above its three-year and five-year historical averages.

  Risks

  Demand trends may be volatile, and furniture spending may be affected by shifts in wallet share or demand pull-forward; fading freight benefits and increased promotional activity could pressure margins.

Key data

• Second-Quarter Comparable Sales Growth+6.2%Above Goldman Sachs' forecast of +5.0% and the FactSet consensus of +4.5%, while the home furnishings industry was flat over the same period
• Pottery Barn Comparable Sales+5.1%Two-year stacked growth of +6.2%, compared with +3.0% in the first quarter
• West Elm Comparable Sales+6.4%New products drove double-digit growth in the summer and fall collections
• Core Williams-Sonoma Brand Comparable Sales+7.6%Achieved against a high prior-year comparison of +5.1%
• B2B Growth+14.5%Contract business +20% and trade business +12%, reaching a record quarterly level
• Adjusted Gross Margin45.5%Excluding tariff refunds; Goldman Sachs forecast 45.6%, while market consensus was 45.9%
• Change in Merchandise Margin-230 basis pointsPrimarily pressured by tariffs
• Supply Chain Efficiency Contribution+30 basis pointsIncluding a +25-basis-point contribution from improved shrink, with some efficiency gains offset by fuel costs
• FY26 Revenue Growth Guidance+4.7% to +7.2%Previously +2.7% to +6.7%, excluding tariff refunds
• FY26 Comparable Sales Growth Guidance+4.0% to +6.5%Previously +2.0% to +6.0%
• FY26 Operating Margin Guidance17.8%-18.2%Previously 17.5%-18.1%
• FY26 EPS Forecast$9.66Raised from $9.54
• FY27/FY28 EPS Forecasts$10.89/$12.23Raised by 4.5% and 5.3%, respectively
• 12-Month Price Target$279Previously $261
• Next-12-Month P/E23.3xAbove the three-year average of 18.6x and five-year average of 15.3x

Impact & implications

The report believes that broad-based second-quarter growth and the raised FY26 guidance demonstrate that Williams-Sonoma's revenue acceleration is supported by multiple brands, channels, and categories rather than being driven solely by short-term collaborations. If tariff pressure eases in the second half as management expects, while inventory accuracy, promotional control, and customer service continue to improve, operating leverage in the core business could support margins and earnings forecasts. Store growth and the company's relatively low existing market penetration also provide longer-term opportunities for market share gains. However, the current valuation is above historical averages, increasing the importance of any shortfall in demand or margins.

Risks

• Demand trends may remain volatile, and the furniture category could also be affected by changes in consumer wallet share or demand pull-forward, weighing on comparable sales.
• Margins may come under pressure when the company no longer benefits from lower freight costs; a more promotional environment could also erode margins.
• WSM's next-12-month P/E is 23.3x, above its three-year average of 18.6x and five-year average of 15.3x, indicating a valuation above historical levels.

What to watch

• Monitor whether tariff costs ease in the second half as management expects, particularly the year-over-year comparison beginning midway through the third quarter and the offsetting effect in the fourth quarter from the high comparison created by FY25 shrink benefits.
• Monitor whether inventory accuracy, promotional levels, and customer service metrics can continue to generate supply chain efficiency and sales leverage.
• Monitor whether improvements at Pottery Barn, the fall collections, and new collaborations can sustain comparable sales momentum across brands.
• Monitor whether the plan to increase store counts by 1%-3% over the next several years and store-opening opportunities in underpenetrated areas can translate into incremental sales.
• Monitor whether website traffic growth in markets such as Canada, the United Kingdom, and Mexico can be sustained.