It has been about a month since the last earnings report for Williams-Sonoma (WSM Quick QuoteWSM - Free Report) . Shares have added about 5.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Williams-Sonoma due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Williams-Sonoma Q1 Earnings Beat, Margins Down Y/Y

Williams-Sonoma Inc. reported mixed results for first-quarter fiscal 2023 (ended Apr 30, 2023). Earnings surpassed the Zacks Consensus Estimate, but revenues missed the same. However, earnings and revenues declined on a year-over-year basis.

Earnings, Revenues & Comps Discussion

Non-GAAP earnings of $2.64 per share surpassed the Zacks Consensus Estimate of $2.41 by 9.5% but declined 24.6% from $3.50 reported a year ago.

Revenues of $1.76 billion missed the consensus mark of $1.79 billion by 1.7% and decreased 7.2% year over year.

Comps fell 6% versus 9.5% growth in the year-ago period. Comps at West Elm brand decreased by 15.8% versus 12.8% growth. Williams-Sonoma comps decreased 4.4% compared with a 2.2% fall registered in the prior-year quarter. Comps at Pottery Barn dipped 0.4% against a 14.6% rise a year ago. Pottery Barn Kids and Teens registered comps decline of 3.3% compared with 3.1% reported in the prior-year quarter.

Operating Highlights

Adjusted gross margin was 38.6%, down 520 basis points (bps) from the year-ago period. The decline was due to higher inbound and outbound shipping and freight costs, as well as 160 bps increased occupancy costs during the reported period.

Non-GAAP selling, general and administrative expenses were 25.7% of net revenues, reflecting an improvement of 100 bps. Furthermore, non-GAAP operating margin contracted 420 bps from the year-ago period to 12.9% for the quarter.

Financials

As of Apr 30, 2023, Williams-Sonoma reported cash and cash equivalents of $297.3 million compared with $367.3 million at fiscal 2022-end. Net cash provided by operating activities totaled $342.5 million in the first three months of fiscal 2023 compared with $184.5 million a year ago.

Williams-Sonoma returned nearly $358 million to shareholders through dividends ($58 million) and share repurchases (approximately $300 million).

Guidance Maintained

WSM anticipates fiscal 2023 net revenues to range between a decline of 3% and a growth of 3%. It also expects its operating margin to be 14-15%. Further, WSM projects mid-to-high single-digit annual net revenue growth and an operating margin above 15% in the long term (by fiscal 2024).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Williams-Sonoma has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Williams-Sonoma has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.