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Williams-Sonoma (WSM) Up 1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Williams-Sonoma (WSM). Shares have added about 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 drivers.

Williams-Sonoma (WSM) Q2 Earnings Beat Estimates, View Up

Williams-Sonoma Inc. reported solid second-quarter fiscal 2021 results, wherein earnings and revenues handily beat the Zacks Consensus Estimate and significantly increased year over year, courtesy of strength across all brands along with accelerated e-commerce growth.

Meanwhile, it lifted fiscal 2021 outlook once again, courtesy of encouraging macro trends.

Laura Alber, the company’s president and chief executive officer, said, “We believe we are at the intersection of a transformative change that will accelerate the growth of our industry, and our market share within the industry. In addition, our growth strategies are gaining traction faster than we predicted, and our key differentiators are further distancing us from our competition."

Earnings & Revenues

Non-GAAP adjusted earnings of $3.24 per share surpassed the Zacks Consensus Estimate of $2.55 by 27.1%. The figure also increased 80% from $1.80 per share reported a year ago.

Revenues of $1,948.3 million beat the consensus mark of $1,802 million by 8.1% and grew 30.7% year over year. The better-than-expected revenues were driven by solid comparable brand revenue growth and e-commerce penetration.

Comps increased 29.8% versus 10.5% growth in the year-ago period. Comps at West Elm increased an impressive 51.1% compared with 7% growth registered in the prior-year quarter. Comps in the Pottery Barn brand grew 29.6% versus 8.1% growth in the prior-year quarter. Williams Sonoma brand’s comps rose 6.4% compared with 29.4% growth in the year-ago quarter. Pottery Barn Kids and Teen’s comps rose 18% versus 4.8% growth in the year-ago quarter.

Also, e-commerce penetration accounted for 65% of total revenues, buoyed by its in-house tech platform, rapid experimentation program, content-rich online experience and marketing strategies.

Operating Highlights

Non-GAAP gross margin was 44.1%, up 710 bps from the year-ago period. The upside was primarily caused by higher merchandise margins and occupancy leverage in the quarter.

Non-GAAP selling, general and administrative expenses were 27.3% of net revenues compared with 23.9% in the year-ago quarter, reflecting an increase of 340 bps. The upside was driven by robust top-line performance and ongoing financial and operational strategies, partly offset by higher advertising spending. Furthermore, non-GAAP operating margin expanded 360 bps from the year-ago period to 16.7% for the quarter.

Financials

Williams-Sonoma reported cash and cash equivalents of $655.2 million as of Aug 1, 2021 compared with $1,200.3 million at fiscal 2020-end. For the second quarter, its capital expenditure was $36 million. Williams-Sonoma returned more than $180 million to shareholders in the form of $45 million in dividends and $135 million in share repurchases.

Raised Fiscal 2021 Guidance

The company is optimistic about business strength, and anticipates recovery in retail traffic as well as inventory levels during fiscal 2021.

For fiscal 2021, Williams-Sonoma now expects revenues to witness high-teens to low-twenties net revenue growth versus low double-digit to mid-teen improvement expected earlier. It also expects non-GAAP operating margin between 16% and 17% for the year.

Furthermore, the company now projects revenue acceleration to $10 billion over the next four years (a year earlier than previous projection).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 15.57% due to these changes.

VGM Scores

At this time, Williams-Sonoma has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Williams-Sonoma has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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