Williams-Sonoma (WSM) Up 4.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Williams-Sonoma (WSM). Shares have added about 4.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Williams-Sonoma due for a pullback? 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 Q3 Earnings & Revenues Top Estimates, FY24 View Revised

Williams-Sonoma reported solid results for third-quarter fiscal 2024 (ended Oct. 27, 2024), with earnings and net revenues topping the Zacks Consensus Estimate. On a year-over-year basis, the bottom line grew while the top line declined.

The quarterly results reflect the company’s focus on operational improvements and its aim of enhancing its customer service and driving margin. However, soft contributions from three of the four reportable segments marred the top-line growth. Nonetheless, given the normalizing trends of the market and the strategic business initiatives undertaken by the company, WSM is optimistic about ending fiscal 2024 on a profitable note.

WSM’s Earnings, Revenues & Comps Discussion

The company reported earnings of $1.96 per share, which surpassed the Zacks Consensus Estimate of $1.76 by 11.4%. In the prior-year quarter, it reported earnings per share (EPS) of $1.83.

Net revenues of $1.8 billion also topped the consensus mark of $1.78 billion by 1.5% but decreased 2.7% year over year.

In the quarter, comps were down 2.9% compared with 14.6% in the year-ago period.

Comps at West Elm brand decreased 3.5% compared with 22.4% reported in the year-ago quarter. Comps at Pottery Barn fell 7.5% compared with 16.6% reported in the year-ago quarter. Williams-Sonoma comps dipped 0.1% compared with 1.9% in the year-ago quarter. On the other hand, Pottery Barn Kids and Teens comps increased 3.8% against a 6.9% decline reported in the year-ago quarter.

Merchandise inventories grew 3.8% to $1.45 billion during the fiscal quarter.

Operating Highlights of Williams-Sonoma

The gross margin was 46.7%, which expanded 230 basis points (bps) from the year-ago period (above our projection of 45%). The increase was due to higher merchandise margins and supply-chain efficiencies, partially offset by occupancy deleverage.

Selling, general and administrative expenses were 28.9% of net revenues, reflecting an increase of 150 bps year over year due to higher employment and advertising expenses, partially offset by lower general expenses. The operating margin expanded 80 bps from the year-ago figure to 17.8% for the quarter.

Williams-Sonoma’s Financials

As of Oct. 27, 2024, Williams-Sonoma reported cash and cash equivalents of $826.8 million, down from $1.26 billion in the fiscal 2023-end. Net cash from operating activities totaled $726.7 million during the first nine months of fiscal 2024 compared with $1.01 billion a year ago.

WSM’s Fiscal 2024 Guidance Updated

Williams-Sonoma now anticipates fiscal 2024 net revenues to decline in the 1.5-3% range compared with the prior projection between -1.5% and -4%. Comps for the year are now expected to be in the range of -3% to -4.5% compared with -3% to -5.5% expected earlier.

The company now expects its operating margin to be between 18.4% and 18.8% (versus earlier expectations of 18% and 1.48%), including the impact of the first-quarter out-of-period adjustment of 60 bps. Without this adjustment, the operating margin is expected between 17.8% and 18.2%.
Annual interest income is projected to be approximately $50 million (up from the prior expectation of $45 million), and the annual effective tax rate is now likely to be 25%.

For the long term, the company continues to project mid-to-high-single-digit annual net revenue growth and an operating margin in the mid-to-high teens.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Williams-Sonoma has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Williams-Sonoma has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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