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In the first quarter of fiscal 2024, Williams-Sonoma delivered strong financial results, with earnings per share (EPS) of $2.04, surpassing expectations by 65 cents, despite a 5.4% year-over-year revenue decline to $1.66 billion. The company achieved a 19.5% operating margin, boosted by a $49 million reversal of freight-related accruals. Without this adjustment, the margin was 16.6%.
WSM's strategy for 2024 focuses on returning to growth, enhancing customer service, and improving margins. The company is leveraging product innovation, marketing, and e-commerce investments, including AI, to drive these goals. Brand performance varied, with Pottery Barn facing challenges in higher-ticket furniture sales (negative 10.8% comps), while West Elm improved (negative 4.1% comps) and Williams-Sonoma saw positive results (0.9% comps).
The business-to-business (B2B) segment grew 10%, and the company saw strong performance in global markets like India, Canada, and Mexico. WSM maintained its full-year revenue guidance, expecting a range of a 3% decline to a 3% increase, and raised its operating margin guidance to 17.6%-18% (17%-17.4% excluding the freight adjustment), confident in navigating the current economic landscape.
WSM, a multi-channel specialty retailer of premium quality home products, has an impressive track record of surpassing earnings expectations, exceeding the consensus mark in each of the last four quarters. The average surprise over this period is 19.6%, as shown in the chart below.
Image Source: Zacks Investment Research
Trend in Estimate Revision
The Zacks Consensus Estimate for the fiscal second-quarter EPS has decreased to $1.45 from $1.46 over the past 30 days. The estimated figure indicates a 7.1% decrease from the year-ago EPS of $1.56. Also, the consensus mark for revenues is $1.82 billion, indicating a 2.5% year-over-year decline.
Image Source: Zacks Investment Research
What Our Model Indicates
Our proven model predicts an earnings beat for WSM this time around. The company possesses the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat.
Earnings ESP: WSM has an Earnings ESP of +22.52%. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Softening category demand due to macro and geopolitical concerns has been weighing on consumers’ capacity to spend on discretionary products. The broader demand for furniture and home furnishings has been weak, with Census Bureau data showing only a slight improvement in retail sales trends in this category. WSM’s key brands, such as West Elm and Pottery Barn, are expected to showcase growth early in the quarter but are expected to witness significant deceleration later. Despite these challenges, WSM’s core brands are expected to gain market share, particularly Pottery Barn and West Elm.
Nonetheless, WSM’s solid operating model, comprising full-price selling, supply-chain efficiencies and top-tier customer service, is expected to have partly offset headwinds in its fiscal second-quarter results. WSM maintains a strong focus on innovation within its product line across brands. Its unique in-house design capabilities and vertically integrated sourcing organization enable the company to deliver high-quality design innovations at attractive price points.
The multi-channel, multi-brand platform, strong e-commerce growth, solid execution of strategic initiatives, digital leadership, product innovation, retail transformation and operational excellence across businesses are expected to have somewhat contributed to Williams-Sonoma’s net sales in the second quarter of fiscal 2024. Also, cross-brand initiatives are expected to have positively contributed to consolidated comps to some extent.
From the margin perspective, while WSM is navigating a tough retail environment, its strategic emphasis on product value, margin management, and selective advertising is expected to mitigate some of the downside risks in the quarter. Notably, WSM is reducing its advertising efforts and aiming to uphold stable pricing in a fiercely competitive market.
Meanwhile, Williams-Sonoma’s margins have benefited from lower ocean freight costs, supply chain efficiencies, and reduced promotional activity, but these advantages are now waning. The company's 2024 guidance suggests flat operating margins from the second to the fourth quarter of the current fiscal year. Some gross margin benefits may persist, likely reinvesting in advertising. Yet, higher incentive compensation expenses are anticipated.
Other Estimates
We expect Pottery Barn Kids and Teen’s comps growth to be at 3%. The same had declined 9% a year ago. In the first quarter of fiscal 2024, comps were positive 2.8%.
Our model predicts Pottery Barn’s comps to decline 4.9% year over year. The same declined 10.6% a year ago. In the first quarter of fiscal 2024, comps were negative 10.8%.
Our model predicts West Elm’s comps to decline 1% year over year. The metric witnessed a 20.8% decline a year ago and a 4.1% decline in the last reported quarter.
We expect the namesake brand’s comps to be up 1% year over year. The metric witnessed a 0.7% decline a year ago but growth of 0.9% in the previously reported quarter.
Price Performance & Valuation
WSM’s stock has exhibited an upward movement in the year-to-date (YTD) period. The stock has gained 39.1% compared with the Zacks Retail - Home Furnishings industry’s rise of 11.6% in the same time frame.
The company has also broadly outperformed its peer companies like RH (RH - Free Report) , down 9.8% YTD), Haverty Furniture Companies, Inc. (HVT - Free Report) , down 20.8%) and Ethan Allen Interiors Inc. (ETD - Free Report) , down 5%).
YTD Price Performance
Image Source: Zacks Investment Research
Let's assess the value WSM offers to investors at its current levels.
Currently, WSM is trading at a forward 12-month price-to-earnings (P/E) ratio of 19.14, above its five-year median of 13.72. In comparison, the industry's forward earnings multiple is 16.58X. This indicates that WSM’s valuation is higher than its historical range and also remains slightly overvalued relative to the industry average.
Again, WSM’s trailing 12-month return on equity of 54.5% is better than its industry average of 44.3%.
Image Source: Zacks Investment Research
Investment Thoughts
Williams-Sonoma has established itself as a prominent e-commerce retailer in the United States, with approximately 66% of its sales derived from online platforms. This figure is anticipated to increase to 70% over time. The company is making significant investments in its digital strategy, dedicating $225 million in 2024 to improve e-commerce and supply chain efficiency.
The company's strengths include its strong brand reputation, high-quality products, effective e-commerce platforms, and strategic marketing efforts. Williams-Sonoma utilizes proprietary technology and AI to enhance its digital marketing, reinforcing its leadership in the market. Additionally, the company's B2B segment is performing well, particularly in sectors such as hospitality, sports, and entertainment, which are less dependent on housing market trends.
Strategically, Williams-Sonoma is focusing on brand strength, innovative product offerings, and partnerships. Key brands like West Elm and Pottery Barn are central to its growth strategy, with plans for new products, collaborations, and international expansion in markets such as India, Mexico, and Canada. Despite some challenges, Williams-Sonoma appears well-positioned for continued growth in the competitive retail environment.
However, risks such as low consumer confidence, housing market fluctuations, and economic uncertainty could impact the company. Concerns also exist regarding the company's flat operating margin expectations and its premium valuation.
Given these factors, including the company's high valuation, recent downward estimate revisions, and macroeconomic risks related to the high-interest rate environment, cautious investors can wait for more stability in Williams-Sonoma's performance and market conditions before considering an investment in this stock.
Image: Bigstock
Williams-Sonoma (WSM) Q2 Earnings Loom: Buy, Sell or Wait?
Williams-Sonoma, Inc. (WSM - Free Report) is scheduled to release second-quarter fiscal 2024 results on Aug 22, before market open.
In the first quarter of fiscal 2024, Williams-Sonoma delivered strong financial results, with earnings per share (EPS) of $2.04, surpassing expectations by 65 cents, despite a 5.4% year-over-year revenue decline to $1.66 billion. The company achieved a 19.5% operating margin, boosted by a $49 million reversal of freight-related accruals. Without this adjustment, the margin was 16.6%.
WSM's strategy for 2024 focuses on returning to growth, enhancing customer service, and improving margins. The company is leveraging product innovation, marketing, and e-commerce investments, including AI, to drive these goals. Brand performance varied, with Pottery Barn facing challenges in higher-ticket furniture sales (negative 10.8% comps), while West Elm improved (negative 4.1% comps) and Williams-Sonoma saw positive results (0.9% comps).
The business-to-business (B2B) segment grew 10%, and the company saw strong performance in global markets like India, Canada, and Mexico. WSM maintained its full-year revenue guidance, expecting a range of a 3% decline to a 3% increase, and raised its operating margin guidance to 17.6%-18% (17%-17.4% excluding the freight adjustment), confident in navigating the current economic landscape.
WSM, a multi-channel specialty retailer of premium quality home products, has an impressive track record of surpassing earnings expectations, exceeding the consensus mark in each of the last four quarters. The average surprise over this period is 19.6%, as shown in the chart below.
Image Source: Zacks Investment Research
Trend in Estimate Revision
The Zacks Consensus Estimate for the fiscal second-quarter EPS has decreased to $1.45 from $1.46 over the past 30 days. The estimated figure indicates a 7.1% decrease from the year-ago EPS of $1.56. Also, the consensus mark for revenues is $1.82 billion, indicating a 2.5% year-over-year decline.
Image Source: Zacks Investment Research
What Our Model Indicates
Our proven model predicts an earnings beat for WSM this time around. The company possesses the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat.
Earnings ESP: WSM has an Earnings ESP of +22.52%. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Influencing Q2 Performance
Softening category demand due to macro and geopolitical concerns has been weighing on consumers’ capacity to spend on discretionary products. The broader demand for furniture and home furnishings has been weak, with Census Bureau data showing only a slight improvement in retail sales trends in this category. WSM’s key brands, such as West Elm and Pottery Barn, are expected to showcase growth early in the quarter but are expected to witness significant deceleration later. Despite these challenges, WSM’s core brands are expected to gain market share, particularly Pottery Barn and West Elm.
Nonetheless, WSM’s solid operating model, comprising full-price selling, supply-chain efficiencies and top-tier customer service, is expected to have partly offset headwinds in its fiscal second-quarter results. WSM maintains a strong focus on innovation within its product line across brands. Its unique in-house design capabilities and vertically integrated sourcing organization enable the company to deliver high-quality design innovations at attractive price points.
The multi-channel, multi-brand platform, strong e-commerce growth, solid execution of strategic initiatives, digital leadership, product innovation, retail transformation and operational excellence across businesses are expected to have somewhat contributed to Williams-Sonoma’s net sales in the second quarter of fiscal 2024. Also, cross-brand initiatives are expected to have positively contributed to consolidated comps to some extent.
From the margin perspective, while WSM is navigating a tough retail environment, its strategic emphasis on product value, margin management, and selective advertising is expected to mitigate some of the downside risks in the quarter. Notably, WSM is reducing its advertising efforts and aiming to uphold stable pricing in a fiercely competitive market.
Meanwhile, Williams-Sonoma’s margins have benefited from lower ocean freight costs, supply chain efficiencies, and reduced promotional activity, but these advantages are now waning. The company's 2024 guidance suggests flat operating margins from the second to the fourth quarter of the current fiscal year. Some gross margin benefits may persist, likely reinvesting in advertising. Yet, higher incentive compensation expenses are anticipated.
Other Estimates
We expect Pottery Barn Kids and Teen’s comps growth to be at 3%. The same had declined 9% a year ago. In the first quarter of fiscal 2024, comps were positive 2.8%.
Our model predicts Pottery Barn’s comps to decline 4.9% year over year. The same declined 10.6% a year ago. In the first quarter of fiscal 2024, comps were negative 10.8%.
Our model predicts West Elm’s comps to decline 1% year over year. The metric witnessed a 20.8% decline a year ago and a 4.1% decline in the last reported quarter.
We expect the namesake brand’s comps to be up 1% year over year. The metric witnessed a 0.7% decline a year ago but growth of 0.9% in the previously reported quarter.
Price Performance & Valuation
WSM’s stock has exhibited an upward movement in the year-to-date (YTD) period. The stock has gained 39.1% compared with the Zacks Retail - Home Furnishings industry’s rise of 11.6% in the same time frame.
The company has also broadly outperformed its peer companies like RH (RH - Free Report) , down 9.8% YTD), Haverty Furniture Companies, Inc. (HVT - Free Report) , down 20.8%) and Ethan Allen Interiors Inc. (ETD - Free Report) , down 5%).
YTD Price Performance
Image Source: Zacks Investment Research
Let's assess the value WSM offers to investors at its current levels.
Currently, WSM is trading at a forward 12-month price-to-earnings (P/E) ratio of 19.14, above its five-year median of 13.72. In comparison, the industry's forward earnings multiple is 16.58X. This indicates that WSM’s valuation is higher than its historical range and also remains slightly overvalued relative to the industry average.
Again, WSM’s trailing 12-month return on equity of 54.5% is better than its industry average of 44.3%.
Image Source: Zacks Investment Research
Investment Thoughts
Williams-Sonoma has established itself as a prominent e-commerce retailer in the United States, with approximately 66% of its sales derived from online platforms. This figure is anticipated to increase to 70% over time. The company is making significant investments in its digital strategy, dedicating $225 million in 2024 to improve e-commerce and supply chain efficiency.
The company's strengths include its strong brand reputation, high-quality products, effective e-commerce platforms, and strategic marketing efforts. Williams-Sonoma utilizes proprietary technology and AI to enhance its digital marketing, reinforcing its leadership in the market. Additionally, the company's B2B segment is performing well, particularly in sectors such as hospitality, sports, and entertainment, which are less dependent on housing market trends.
Strategically, Williams-Sonoma is focusing on brand strength, innovative product offerings, and partnerships. Key brands like West Elm and Pottery Barn are central to its growth strategy, with plans for new products, collaborations, and international expansion in markets such as India, Mexico, and Canada. Despite some challenges, Williams-Sonoma appears well-positioned for continued growth in the competitive retail environment.
However, risks such as low consumer confidence, housing market fluctuations, and economic uncertainty could impact the company. Concerns also exist regarding the company's flat operating margin expectations and its premium valuation.
Given these factors, including the company's high valuation, recent downward estimate revisions, and macroeconomic risks related to the high-interest rate environment, cautious investors can wait for more stability in Williams-Sonoma's performance and market conditions before considering an investment in this stock.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.