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Williams-Sonoma (WSM) Gains on Q1 Earnings Beat & Solid View

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Shares of Williams-Sonoma Inc. (WSM - Free Report) have rallied more than 14% in after-hour trading on May 23, following better-than-expected results in the first quarter of fiscal 2018.

Adjusted earnings of 67 cents per share surpassed the Zacks Consensus Estimate of 57 cents as well as the company’s guided range of 55-60 cents. The figure also increased 31.4% from the year-ago level.

Revenue Discussion

Net revenues of $1,203 million came ahead of the consensus mark of $1,162 million and increased 8.2% year over year.

Comparable brand revenues increased 5.5% in the quarter, better than 3.4% increase recorded in the preceding quarter and 0.1% growth in the year-ago quarter. The improvement was driven by broad-based strength across all its brands.

The company’s namesake brand’s comparable brand revenues were up 5.6%, higher than 3.2% growth registered in the prior-year quarter. West Elm’s comparable brand revenues increased 9% compared with a 6% rise in the prior-year quarter.

Pottery Barn’s comparable brand revenues were up 2.7% against a 1.4% decline in the prior-year quarter. Pottery Barn Kids and Teen’s comparable brand revenues increased 5.3% against 8% decline in the year-ago quarter. Notably, effective fiscal first quarter, the performance of the Pottery Barn Kids and PBteen brands is being reported on a combined basis as Pottery Barn Kids and Teen.

Williams-Sonoma, Inc. Price, Consensus and EPS Surprise

 

Williams-Sonoma, Inc. Price, Consensus and EPS Surprise | Williams-Sonoma, Inc. Quote

Segment Details

e-commerce (accounting for 52.2% of fiscal first-quarter revenues): The segment reported net revenues of $646.2 million in the quarter, up 11.3% year over year.

Retail (47.8%): The segment reported net revenues of $556.8 million in the reported quarter, up 4.9% from the prior-year quarter.

Operating Highlights

Non-GAAP operating margin was 6.3% in the quarter, up 20 basis points (bps) from the year-ago quarter. Adjusted gross margin was 36%, up 40 bps from the year-ago figure.

Adjusted selling, general and administrative (SG&A) expenses were 29.7% of the net revenues or $358 million in the quarter, reflecting an increase of 20 bps year over year owing to the adoption of the new accounting standard.

Merchandise inventories at the end of the quarter increased 1.5% to $1,053 million from the prior-year quarter.
 
Financials

Williams-Sonoma had cash and cash equivalents of $290.2 million as of Apr 29, 2018 compared with $390.1 million as of Jan 28, 2018.

During fiscal second quarter, the company repurchased 732,000 shares of common stock at an average cost of $51.53 per share and a total cost of approximately $38 million. Williams-Sonoma has approximately $481 million remaining under its present stock repurchase authorization, as of Apr 29, 2018.

Fiscal Second-Quarter Guidance

Williams-Sonoma expects non-GAAP earnings per share for the second quarter in the band of 65-70 cents.

The company expects net revenues within the range of $1,250-$1,275 million. Comparable brand revenues are likely to grow 3-5%.

Fiscal 2018 Guidance

The company now expects revenues in the $5,495-$5,655 million range (versus $5,475-$5,635 million expected earlier). Comparable brand revenues are reaffirmed to grow in the range of 2-5%.

Williams-Sonoma now expects non-GAAP earnings within $4.15-$4.25 versus $4.12-$4.22 per share projected earlier.

Non-GAAP operating margin is maintained in the 8.2-9% range and tax rate between 24% and 26%.

Capital expenditures are projected in the $200-$220 million band for the year.

Zacks Rank & Stocks to Consider

Williams-Sonoma carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Retail-Wholesale sector are Dillard's, Inc. (DDS - Free Report) , Kohl's Corporation (KSS - Free Report) and Asbury Automotive Group, Inc. (ABG - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings for Dillard's are expected to increase 26% this year.

Earnings for Kohl's are expected to increase 25.5% this fiscal.

Asbury Automotive’s earnings growth in 2018 is expected to be 26.7%.

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