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Williams-Sonoma Inc.’s (WSM - Snapshot Report) share price jumped close to 8% after it announced strong fiscal third quarter 2013 results on Nov 20. The share price has witnessed an uptrend ever since. Adjusted earnings of 58 cents per share increased 18.4% year over year and also beat the Zacks Consensus Estimate of 54 cents by 7.4%. The results reflect solid top-line performance across all its brands.

Revenue Discussion

Williams-Sonoma quarterly revenues were $1.05 billion, up 11.3% year over year. The top line also easily beat the Zacks Consensus Estimate of $1.03 billion by 2.0%. It was also above the company’s third quarter guidance of $1.02 billion to $1.04 billion. The upside reflects strong revenues in both Direct-to-customer and Retail segments driven by growth at Pottery Barn and West Elm.

Though comps growth of 8.2% was lower than 8.5% in the year ago quarter, it was above the company’s guidance range of 4.0% to 6.0% growth. Comparable brand revenue growth at Pottery Barn, Williams-Sonoma, Pottery Barn Kids, West Elm and PBteen was 8.4%, 1.4%, 3.9%, 22.2% and 16.7%, respectively.

Operational Highlights

Selling, general and administrative (SG&A) expense ratio declined 80 basis points (bps) in the quarter to 28.6%. This resulted in operating income of $92.4 million, up 16.6% year over year. Operating margin was up 40 basis points to 8.8% during the quarter due to the decline in SG&A ratio.

Financial Condition

As of Nov 3, 2013, cash and cash equivalents were $128.8 million, down from $262.5 million as of Oct 28, 2012. Long-term debt was approximately 2.0 million, down from $3.8 million as of Oct 28, 2012.

During the reported quarter, the company repurchased 1.5 million shares at an average price of $55.89 per share. As of Nov 3, 2013, the company had authority to repurchase $534 million worth of shares under the three-year $750 million stock repurchase program announced in Mar 2013.

Fiscal 2013 Guidance Upped

For fiscal 2013, the company raised its net revenue guidance to the range of $4.29 billion to $4.35 billion versus its prior expectation of $4.26 billion to $4.34 billion. Comps growth is expected to be in the range of 5.0% to 7.0%. Total store count at the end of 2013 is expected to be 580, marginally down from 581 at the end of fiscal 2012.

The company also increased its 2013 earnings per share guidance to the range of $2.76 to $2.83 per share versus its prior expectation of $2.69 to $2.79 per share.

Fourth Quarter Outlook

For the fourth quarter of fiscal 2013, the company expects net revenue in the range of $1.37 to $1.43 billion while comps are expected to increase in the range of 3.0% to 6.0%. The company expects earnings in the range of $1.30 to $1.37 per share.

Zacks Rank

Williams-Sonoma currently has a Zacks Rank #2 (Buy). Some other stocks worth considering in the space include Kirkland's Inc. (KIRK - Analyst Report), Fortune Brands Home & Security, Inc. (FBHS - Snapshot Report) and Haverty Furniture Companies Inc. (HVT - Snapshot Report). While Kirkland's Inc. holds a Zacks Rank #1 (Strong Buy), Fortune Brands and Haverty Furniture carry a Zacks Rank #2 (Buy).

 

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