It has been about a month since the last earnings report for Williams-Sonoma (WSM - Free Report) . Shares have lost about 13.8% 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 its most recent earnings report in order to get a better handle on the important drivers.
Williams-Sonoma (WSM - Free Report) Q3 Earnings Top, Comps Soft
Williams-Sonoma Inc. reported non-GAAP earnings of 95 cents per share (at the higher end of the guided range) in the third quarter of fiscal 2018, surpassing the Zacks Consensus Estimate of 94 cents. The figure also grew 13.1% year over year.
The company’s revenues of $1,357 million missed the consensus mark of $1,363 million but grew 4.4% year over year.
Comps increased 3.1% compared with 4.6% increase in the second quarter and 3.3% growth in the year-ago quarter.
Meanwhile, demand comps (total customer orders placed in the quarter) were 4.6%, higher than reported comps growth of 3.1%. The company highlighted that the gap between demand comps and reported comps was mainly due to unexpected delays in product receipts owing to port congestion of products imported out of China, as many U.S. importers enhanced shipments ahead of the Jan 1 tariff increase.
The company’s West Elm brand’s comps grew 8.3% compared with 11.5% growth in the prior-year quarter. Also, Pottery Barn’s comps were up 1.4% from negative 0.3% in the year-ago quarter. Meanwhile, Pottery Barn Kids and Teen’s recorded flat comps compared with 0.9% growth in the year-ago quarter. The company’s Williams Sonoma brand’s comps were 2.1%, down from 2.3% growth registered in the prior-year quarter.
E-Commerce (55% of fiscal third-quarter revenues) segment reported net revenues of $746.7 million in the quarter, up 8.2% year over year.
Retail (45%) segment’s net revenues inched up 0.2% to $610.3 million in the reported quarter.
Non-GAAP gross margin was 36.5%, up 60 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 28.9% of net revenues or $391.7 million in the quarter, reflecting an increase of 100 bps year over year, owing to higher employment-related costs.
Non-GAAP operating margin was 7.6% in the quarter, down 90 bps year over year. Merchandise inventories increased 1.8% to $1.2 billion.
Williams-Sonoma reported cash and cash equivalents of $164.4 million as of Oct 28, 2018 compared with $390.1 million on Jan 28, 2018.
During fiscal third quarter, the company repurchased 742,508 shares of common stock at an average price of $61.15 per share and a total cost of approximately $45 million. As of Oct 28, 2018, Williams-Sonoma had approximately $299 million remaining under its present stock repurchase program.
Fiscal Fourth-Quarter Guidance
Williams-Sonoma currently expects non-GAAP earnings per share in the band of $1.89-$1.99.
The company expects net revenues in the range of $1,733-$1,833 million. Comps are likely to grow 0-5%.
Reaffirms Fiscal 2018 Guidance
Williams-Sonoma expects its total revenues in the $5,565-$5,665 million range. Comps are expected to grow in the range of 3-5%.
Williams-Sonoma expects non-GAAP earnings within $4.26-$4.36 per share.
Non-GAAP operating margin is likely to be in the range of 8.4-9%. The company also 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.
Currently, Williams-Sonoma has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second 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.
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.