Williams-Sonoma (WSM) Rallies on Q4 Earnings & Revenue Beat

Shares of Williams-Sonoma Inc. WSM rallied more than 5% in after-hours trading on Mar 14, after the company reported better-than-expected results in the fourth quarter of fiscal 2017.

Adjusted earnings of $1.68 per share surpassed the Zacks Consensus Estimate of $1.63. The figure also increased 8.4% from the year-ago level.

Revenue Discussion

Net revenues of $1,680 million came ahead of the consensus mark of $1,649 million and increased 6.2% year over year.

Comparable brand revenues increased 5.4% in the quarter, better than 3.3% increase in the preceding quarter and 0.9% decline in the year-ago quarter. The reported figure marks the highest fourth-quarter comps the company has registered in several years, driven by broad-based strength across all its brands. All brands of Williams-Sonoma have returned to positive growth this quarter.

The company’s namesake brand’s comparable brand revenues were up 4.3%, better than 1.4% growth in the prior-year quarter. West Elm’s comparable brand revenues increased 12.3% compared with a 6.5% rise in the prior-year quarter.

Pottery Barn’s comparable brand revenues were up 4.1% against a 4.1% decline in the prior-year quarter. Pottery Barn Kids’ comparable brand revenues increased 0.9% against 4.9% decline in the year-ago quarter. PBteen’s comparable brand revenues registered 2.6% growth against 8.1% 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 (accounting for 52.5% of fiscal 2017 revenues): The segment reported net revenues of $877 million in the quarter, up 8.4% year over year.

Retail (47.5%): The segment reported net revenues of $802 million in the reported quarter, up 3.9% from the prior-year quarter.

Operating Highlights

Non-GAAP operating margin was 12.4% in the quarter, down 120 basis points (bps) from the year-ago quarter. Gross margin was 38.5%, down 80 bps from the year-ago figure.

Adjusted selling, general and administrative (SG&A) expenses were 26.1% of net revenues or $438 million in the quarter, reflecting an increase of 40 bps year over year due to higher digital advertising spending and employment-related costs.

Merchandise inventories at the end of the quarter increased 8.6% to $1.06 billion from the prior-year quarter.
 
Fiscal 2017 Highlights

Full-year adjusted earnings came in at $3.61, up 5.2% year over year. Net revenues were $5.3 billion, an increase of 4.1% from fiscal 2016 level. Comparable brand revenues grew 3.2%, marking a major improvement from 0.7% growth in fiscal 2016. West Elm registered the highest growth in Comparable brand revenues (up 10.2%), followed by Williams Sonoma (3.2%), and Pottery Barn (1%). However, Pottery Barn Kids and PBteen registered a decline of 1.8% and 1.4%, respectively, in comparable brand revenues.

Financials

Williams-Sonoma had cash and cash equivalents of $390.1 million as of Jan 28, 2018, compared with $213.7 million as of Jan 29, 2017.

During fiscal 2017, the company repurchased 4.1 million shares of common stock at an average cost of $48.43 per share and a total cost of approximately $196 million. Williams-Sonoma has approximately $214 million remaining under its present stock repurchase authorization, as of Jan 28, 2018.

10% Dividend Hike

Separately, the company’s board of directors authorized a 10% increase in its quarterly cash dividend to 43 cents per share. The company also raised its share buyback authorization to $500 million.

Fiscal First-Quarter Guidance

Williams-Sonoma expects non-GAAP earnings per share for the first quarter in the band of 55-60 cents.

The company expects net revenues in the band of $1,135-$1,170 million. Comparable brand revenues are likely to grow 2-5%.

Fiscal 2018 Guidance

The company expects revenues in the $5,475-$5,635 million range. Comparable brand revenues are likely to grow in the 2-5% range.

Williams-Sonoma expects non-GAAP earnings in the range of $4.12-$4.22 per share.

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

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

Zacks Rank & Stocks to Consider

Williams-Sonoma carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the  Retail-Wholesale sector are Dillard's, Inc. DDS, Macy's, Inc. M and Kohl's Corporation KSS.

Earnings for Dillard's, a Zacks Rank #1 (Strong Buy) company, are expected to increase 21.3% this year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Macy's has a solid ROE of 24.9%, higher the industry average of 11.2%. The company also sports a Zacks Rank #1.

Earnings for Kohl's, a Zacks Rank #2 (Buy) stock, are expected to increase 24.1% this year.

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