A month has gone by since the last earnings report for Williams-Sonoma (WSM Quick QuoteWSM - Free Report) . Shares have lost about 4.1% in that time frame, underperforming the S&P 500.

But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Williams-Sonoma due for a breakout? 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 Q2 Earnings and Revenue Beat

Williams-Sonoma posted second-quarter fiscal 2026 adjusted earnings of $2.10 per share, up 5% year over year and above the Zacks Consensus Estimate of $2.05 by 2.4%. Net revenues rose 6.7% to $1.96 billion and beat the consensus mark of $1.91 billion by 2.5%.

Comparable brand revenues increased 6.2%, with every major brand posting positive growth. Broad-based brand gains and supply-chain efficiencies supported the quarter, while tariff costs weighed on merchandise margins.

However, WSM shares lost about 5% following the earnings release, likely reflecting investor concerns about profitability. Non-GAAP gross margin and operating margin contracted year over year, as lower merchandise margins, primarily due to tariff-related costs, pressured results. Investor sentiment may also have been tempered by the company’s outlook, which assumes that current tariffs will remain in place and oil prices will stay elevated for the remainder of fiscal 2026, potentially sustaining cost pressures.

WSM's Brand Gains Support Revenue Growth

Pottery Barn remained the largest revenue contributor, generating $770.8 million in the quarter. Comparable brand revenues for Pottery Barn increased 5.1% from the year-ago period compared with 1.1% growth in the prior-year quarter.

West Elm delivered $496.3 million of revenues, with comps up 6.4% compared with 3.3% a year ago. Williams Sonoma, including Williams Sonoma Home, generated $268.8 million and posted 7.6% comparable growth compared with 5.1%. Pottery Barn Kids and Teen recorded $297.4 million in revenues, while comps rose 3.5%. The Other category contributed $126.4 million.

Williams-Sonoma Sees Adjusted Margin Pressure

Non-GAAP gross profit totaled $891.6 million, with gross margin of 45.5%, down 160 basis points (bps) year over year. Lower merchandise margins reduced the rate by 230 bps, primarily because of tariff costs. Supply-chain efficiencies contributed 30 basis points of benefit, while occupancy leverage added 40 bps. Non-GAAP selling, general and administrative expenses were $553.2 million, up 3.1% year over year. The SG&A rate fell 100 bps to 28.2%, helped by 120 basis points of leverage in employment expense. Higher general and advertising expenses added 10 bps each.

WSM's Profitability Reflects Tariff Adjustments

Non-GAAP operating income was $338.5 million, up from $328.06 million a year ago. The adjusted operating margin was 17.3%, down 60 bps from 17.9% in the prior-year quarter as gross-margin pressure offset expense leverage.

On a GAAP basis, operating income was $448.8 million and operating margin reached 22.9%. During the quarter, WSM recognized $167.8 million of tariff refund income as a reduction to cost of goods sold, partly offset by $47.5 million of vendor concessions and a $10 million employee recognition cost. The company excluded these items from non-GAAP results. It also excluded $6.3 million of interest income tied to the tariff refund.

Williams-Sonoma Strengthens Cash Generation

Cash and cash equivalents were $1.03 billion at Aug. 2, 2026, compared with $985.8 million a year earlier. Merchandise inventories were $1.45 billion, up 1% year over year, net of $29.3 million of deferred tariff refund income recorded as a reduction of inventory. The deferred amount is expected to be recognized as a reduction to cost of goods sold in the fiscal third quarter.

For the first 26 weeks of fiscal 2026, net cash provided by operating activities totaled $695.9 million, up from $401.7 million in the year-ago period. WSM repurchased $287.8 million of common stock and paid $175.4 million in dividends over the same period. Purchases of property and equipment were $116.4 million.

WSM Raises Fiscal 2026 Outlook

Williams-Sonoma raised its fiscal 2026 guidance after strong year-to-date performance. The company now expects annual net revenues to increase 4.7% to 7.2%, with comparable brand revenue growth of 4% to 6.5%. Non-GAAP operating margin is projected to be between 17.8% and 18.2%. The outlook assumes currently imposed tariffs remain in place for fiscal 2026, including Section 232 tariffs and existing and newly announced Section 301 tariffs. It also assumes oil prices stay elevated for the rest of the year and no benefit from tariff refunds or related interest.

WSM expects annual interest income of approximately $25 million and an effective tax rate of approximately 26% on a non-GAAP basis. Its long-term targets remain mid-to-high single-digit annual net revenue growth and an operating margin in the mid-to-high teens.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Williams-Sonoma has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock has a grade of D on the value side, putting it in the bottom 40% for value investors.

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

Outlook

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