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Williams-Sonoma (WSM) Down 8.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Williams-Sonoma (WSM - Free Report) . Shares have lost about 8.8% in that time frame, underperforming the S&P 500.

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 catalysts.

Williams-Sonoma (WSM - Free Report) Q2 Earnings Beat, View Up

Williams-Sonoma Inc. recently reported better-than-expected results in the second quarter, given broad-based strength across all its brands, with Pottery Barn brand recording a steady year-over-year improvement.

Non-GAAP earnings of 77 cents per share surpassed the Zacks Consensus Estimate of 68 cents by 13.2%. The figure also grew 26.2% year over year backed by gross margin expansion.

Revenue Discussion

The company’s revenues were $1,275.2 million, up 6.1% year over year. The improvement was driven by broad-based strength across all its brands. Also, the reported figure surpassed the consensus mark of $1,258 million by 1.4%.

Comparable brand revenues increased 4.6% in the quarter compared with 2.8% growth recorded in the year-ago quarter.

The company’s West Elm’s brand’s comparable brand revenues increased 9.5% compared with 10.1% increase in the prior-year quarter. Also, Pottery Barn’s comparable brand revenues were up 2% from 1.2% in the year-ago quarter. Meanwhile, Pottery Barn Kids and Teen recorded growth of 5.7% against 2.7% decline in the year-ago quarter.

However, the company’s Williams Sonoma brand’s comparable brand revenues were up 1.6% compared with 1.9% growth registered in the prior-year quarter.

Segment Details

E-Commerce (53.9% of fiscal second-quarter revenues) segment reported net revenues of $686.9 million in the quarter, up 8.9% year over year.

Retail (46.1%) segment’s net revenues rose 3.1% to $588.2 million in the reported quarter.

Operating Highlights

Non-GAAP gross margin was 36.5%, up 130 bps from the year-ago figure. The upside was attributable to higher selling margins and occupancy leverage.

Non-GAAP selling, general and administrative (SG&A) expenses were 29.7% of net revenues or $378.6 million in the quarter, reflecting an increase of 130 bps year over year, owing to adoption of the new accounting standard associated with revenue recognition.

Non-GAAP operating margin was 6.8% in the quarter, flat year over year. Merchandise inventories increased 2.5% to $1.100 billion.

Financials

Williams-Sonoma reported cash and cash equivalents of $174.6 million as of Jul 29, 2018 compared with $390.1 million on Jan 28, 2018.

During fiscal second quarter, the company repurchased 2,409,000 shares of common stock at an average price of $56.90 per share and a total cost of approximately $137 million. As of Jul 29, 2018, Williams-Sonoma had approximately $344 million remaining under its present stock repurchase program.

Fiscal Third-Quarter Guidance

Williams-Sonoma currently expects non-GAAP earnings per share in the band of 90-95 cents.
The company expects net revenues in the range of $1,355-$1,380 million. Comparable brand revenues are likely to grow 3-5%.

Fiscal 2018 Guidance

Williams-Sonoma raised its 2018 outlook. The company currently expects its total revenues in the $5,565-$5,665 million range versus $5,495-$5,655 million expected earlier.

Comparable brand revenues are expected to grow in the range of 3-5% compared with prior expectation of 2-5%.

Williams-Sonoma now expects non-GAAP earnings within $4.26-$4.36 versus $4.15-$4.25 per share projected earlier.

Non-GAAP operating margin is revised upward to the range of 8.4-9% from 8.2-9% projected earlier. However, the company retained its tax rate and capital expenditure guidance of 24-26% and $200-$220 million, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Williams-Sonoma has a great Growth Score of A, a grade with the same score on the momentum front. 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.




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