It has been about a month since the last earnings report for Williams-Sonoma (WSM). Shares have lost about 3.2% 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 catalysts.
Williams-Sonoma’s (WSM) Q4 Earnings & Revenues Beat Estimate
Williams-Sonoma Inc.’s earnings and revenues beat the Zacks Consensus Estimate by 6.6% and 2.2%, respectively, in the fourth-quarter fiscal 2018.
Non-GAAP earnings of $2.10 per share (at the high end of the guided range) surpassed the Zacks Consensus Estimate of $1.97. The figure grew 25% year over year.
Revenues of $1,836.4 million beat the consensus mark of $1,797.4 million and grew 9.3% year over year.
Comps increased 2.4% in the fourth quarter, compared with 5.4% in the year-ago quarter.
The company’s West Elm brand’s comps grew 11.1% compared with 12.3% growth in the prior-year quarter. Also, the company’s Williams Sonoma brand’s comps grew 0.1% from 4.3% registered in the prior-year quarter. Pottery Barn Kids and Teen’s comps grew 1.6% compared with 1.4% growth in the year-ago quarter. However, Pottery Barn’s comps were down 0.4% against 4.1% growth in the year-ago quarter.
E-Commerce (54.6% of fiscal fourth-quarter revenues) segment reported net revenues of $1,002.2 million in the quarter, up 14.3% year over year.
Retail (45.4%) segment’s net revenues inched up 3.9% to $834.2 million.
Non-GAAP gross margin was 38.7%, up 20 basis points (bps) from fourth-quarter fiscal 2017. The upside can be attributed to occupancy leverage, partially offset by lower selling margins.
Non-GAAP selling, general and administrative (SG&A) expenses were 26.9% of net revenues compared with 26.1% in the year-ago quarter, reflecting an increase of 80 bps due to new revenue recognition standards which were partially offset by advertising leverage.
Non-GAAP operating margin was 11.9% in the quarter, down 50 bps year over year.
Merchandise inventories increased 6% to $1.1 billion.
Williams-Sonoma reported cash and cash equivalents of $339 million as on Feb 3, 2019, compared with $390.1 million as on Jan 28, 2018.
During the fiscal fourth quarter, the company increased its existing stock repurchase program by $500 million. Presently, it has $210 million remaining under its present stock repurchase program.
The company announced an 11.6 % increase in its quarterly cash dividend to 48 cents per share. The quarterly dividend is payable on May 31, 2019, to stockholders of record as of the close of business on Apr 26, 2019.
Fiscal 2018 Highlights
The company’s earnings came in at $4.46 per share, on a non-GAAP basis, reflecting an increase of 23.5% from fiscal 2017 profit level. Net revenues were $5.67 billion, up 7.2% from the year-ago level. On a non-GAAP basis, net revenues grew 7.1%.
Comps grew 50 bps over last year to 3.7% with positive comps growth in all brands, including 150-bp growth in the Pottery Barn brands.
Fiscal 2019 Guidance
Williams-Sonoma expects non-GAAP earnings per share in the band of $4.50-$4.70. Notably, fiscal year 2019 includes 52 weeks, compared with a 53-week fiscal 2018.
Net revenues are projected in the range of $5.670-$5.840 billion. Comps are likely to grow 2-5%. Non-GAAP operating margin is expected to be in line with fiscal 2018 levels.
The company expects full year comps to be back half weighted given difficult comparison in the first half. Additionally, revenues in the first quarter may also be impacted by an Easter shift.
The company expects an incremental buyback of shares under a repurchase authorization of approximately $710 million.
It expects to close 30 stores in the year, bringing down the total store count to 595 by the end of the year.
Effective fiscal year 2019, the company is implementing a new lease accounting standard which requires all leases with terms greater than 12 months to be capitalized on the balance sheet. This will result in a net increase of approximately 1.2 billion to Williams-Sonoma’s asset and liabilities upon adoption of the standard in the first quarter fiscal year 2019. However, there will be no material impact on the income statement.
Secondly, owing to the rapid convergence of its retail and e-commerce businesses, and the synergies that exists between the two, Williams-Sonoma will no longer be reporting its financial results into separate segments. Hence, beginning fiscal 2019, the company will be consolidating its financial results into one reportable segment and will continue to provide quarterly comps and annual revenues by brand.
Lastly, the company is implementing a change in its guidance practice beginning fiscal 2019. Instead of providing it quarterly, it will show annual guidance along with a long-term financial outlook.
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 great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 #2 (Buy). We expect an above average return from the stock in the next few months.
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