Williams-Sonoma (WSM) Earnings Meet, Revenues Beat in Q3

Shares of Williams-Sonoma Inc. WSM were down 8.5% in after-hours trading on Nov 16, after the company reported in-line results for the third quarter of fiscal 2017.

Adjusted earnings of 84 cents per share were in line with the Zacks Consensus Estimate. The figure also increased 7.7% from the year-ago level.

Net revenues of $1,299 million were slightly higher than the Zacks Consensus Estimate of $1,293 million and up 4.3% year over year. However, net revenues reflect an estimated $7.0 million impact of lost sales associated with the hurricanes in Texas, Florida and Puerto Rico.

Comparable Brand Revenues

Comparable brand revenues increased 3.3% in the quarter, compared with a 2.8% increase in the preceding quarter and 0.4% decline in the year-ago quarter.

The company’s namesake brand’s comparable brand revenues were up 2.3%, better than 0.1% growth in the prior-year quarter. West Elm’s comparable brand revenues increased 11.5% compared with the 12% rise in the prior-year quarter.

Pottery Barn’s comparable brand revenues were down 0.3% as compared with a 4.6% decline in the prior-year quarter. Pottery Barn Kids’ comparable brand revenues increased 0.1% as against 1% decline in the year-ago quarter. PBteen’s comparable brand revenues registered 3% growth against a 10.9% plunge in the year-ago quarter.

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

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

Segment Details

e-commerce: The segment reported net revenues of $690 million in the quarter, up 6.4% year over year. The upside was driven by West Elm brand, Williams-Sonoma brand, the company’s newer businesses Rejuvenation and Mark and Graham along with its international operations.

Retail: The segment reported net revenues of $609 million in the reported quarter, up 2.1% year over year, primarily driven by West Elm and Pottery Barn. The upside was driven by the company’s various retail initiatives, including in-home design services and store remodels.

Operating Highlights

Operating margin was 8.5% in the quarter, down 40 basis points (bps) from the year-ago quarter.

Gross margin was 35.9% down 90 bps from the year-ago figure.

Selling, general and administrative (SG&A) expenses were 27.4% of net revenues or $356 million in the quarter, reflecting a decrease of 60 bps year over year.

Merchandise inventories at the end of the quarter increased 10.6% to $1.18 billion from $1.06 billion in the prior-year quarter.
 
Another Update

Williams-Sonoma recently entered into a definitive agreement to acquire Outward, Inc. — a leading 3-D imaging and augmented reality platform for the home furnishings and decor industry. The deal is valued at $112 million and is expected to close by the end of this year.

The buyout is expected to enhance and extend Williams-Sonoma’s customer service platform and help develop technologies that will transform the shopping experience for home furnishing buyers.

Financials

Williams-Sonoma has cash and cash equivalents of $90.8 million as of Oct 29, 2017, compared with $75.4 million as of Oct 30, 2016.

During the quarter under review, the company repurchased 1.3 million shares of common stock at an average cost of $46.84 a share and a total cost of approximately $61 million. William-Sonoma has approximately $256 million remaining under its present stock repurchase authorization, as of Oct 29, 2017.

Fourth-Quarter Guidance

Williams-Sonoma expects fourth-quarter fiscal 2017 earnings per share in the band of $1.49 to $1.64.

The company expects net revenues in the band of $1,610 million to $1,675 million. Comparable brand revenues are likely to grow 2-6%.

Fiscal 2017 Guidance

The company raised its revenue guidance for fiscal 2017. It now expects revenues in the $5,225-$5,290 million range ($5,165-$5,265 million).

Williams-Sonoma expects earnings in the range of $3.45 to $3.60 per share ($3.45-$3.65 earlier).

Comparable brand revenues are likely to grow in the 2% to 4% range (1-3% expected earlier).

Operating margin is anticipated in the 9% to 9.2% range and tax rate between 35% and 36%.

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

Zacks Rank & Stocks to Consider

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

A few better-ranked stocks in the  Retail-Wholesale sector are Alibaba Group Holding Limited BABA, Cracker Barrel Old Country Store, Inc. CBRL and Beacon Roofing Supply, Inc. BECN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alibaba’s earnings are expected to increase 52.8% in fiscal 2018.

Cracker Barrel Old Country Store has a solid EPS surprise history, surpassing earnings estimates in each of the trailing four quarters, the average beat being 4.9%.

Beacon Roofing’s earnings are expected to increase 224% in fiscal 2018.

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