The Wealth Effect Will Drive High-End Retailers Higher

Economic data continues to show that the rich got richer during the pandemic. Most were unaffected by shutdowns, and having wealth tied up in appreciating assets like stock and real estate increased their net worth.

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  • That’s also true well into the middle class, a trend that also benefits a number of higher-end retailers. Like the big box stores, these companies have held up well, as reduced spending in activities like attending concerts or going out to dine led to higher spending elsewhere.

    One such winner is Williams Sonoma (WSM). The company has continued to beat on earnings, including its latest beat, making $3.24 per share, well over expectations of $2.60 per share. The company is also increasing its dividend by 20 percent.

    The beat caused shares to jump back to their 52-week highs. Thanks to strong earnings, however, shares still trade around 15 times earnings, and the stock yields about 1.5 percent, with room for more dividend growth in the future.

    Action to take: This is a reasonable way to play spending trends in the upper-middle class and up, and as a dividend growth play for years to come.

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  • Traders may like the January $200 calls, which last went for around $17. While a bit pricey, a continued move higher post-earnings could lead to mid-to-high double-digit yields.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may make a trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.