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Williams-Sonoma (WSM) Jumps 4.2% on Q1 Earnings Beat, Ups View

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Williams-Sonoma Inc.’s WSM shares jumped more than 4% in the after-hour trading session on May 26, following solid first-quarter fiscal 2021 results. The company’s earnings and revenues handily beat the Zacks Consensus Estimate and significantly increased year over year, courtesy of strength across all brands and accelerated e-commerce growth.

Meanwhile, the company has also lifted fiscal 2021 outlook, courtesy of solid start to the year and encouraging macro trends.

Laura Alber, President and Chief Executive Officer, said, “As we look ahead, we are confident in our runway for growth and profitability. The goals we have set are driving incremental growth faster than anticipated, our brand differentiators continue to accelerate, and favorable macro trends should continue to benefit our business for the long-term. We are the only home furnishings retailer that’s able to serve customers at scale online and provide the experience and convenience of physical retail with exclusive sustainable products – giving us the unique advantage to gain share for many years to come.”

Earnings & Revenues

Non-GAAP adjusted earnings of $2.93 per share surpassed the Zacks Consensus Estimate of $1.85 by 58.4%. The figure also increased 295.9% from 74 cents per share reported a year ago.

Revenues of $1,749 million beat the consensus mark of $1,508 million by 16% and grew 41.6% year over year. The better-than-expected revenues were driven by comparable brand revenue growth of 40.4%.

Also, e-commerce penetration accounted for more than 65% of total revenues, buoyed by content-rich online experience and marketing strategies.

Comps increased 40.4% versus 25.7% growth in the fiscal fourth quarter and 2.6% in the year-ago period. Comps at West Elm increased an impressive 50.9% compared with 3.3% growth registered in the prior-year quarter. Comps in the Pottery Barn brand grew 41.3% against a decline of 1.1% in the prior-year quarter. Williams Sonoma brand’s comps rose 35.3% compared with 5.4% growth in the year-ago quarter. The Pottery Barn Kids and Teen’s comps rose 27.6% versus 8.5% growth in the year-ago quarter.

WilliamsSonoma, Inc. Price, Consensus and EPS Surprise

WilliamsSonoma, Inc. Price, Consensus and EPS Surprise
WilliamsSonoma, Inc. Price, Consensus and EPS Surprise

WilliamsSonoma, Inc. price-consensus-eps-surprise-chart | WilliamsSonoma, Inc. Quote

Operating Highlights

Non-GAAP gross margin was 43%, up 850 basis points (bps) from the year-ago period. The upside was primarily caused by higher selling margins and occupancy leverage in the quarter.

Non-GAAP selling, general and administrative expenses were 27.1% of net revenues compared with 28.1% in the year-ago quarter, reflecting an improvement of 100 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 950 bps from the year-ago period to 15.9% for the quarter.

Financials

Williams-Sonoma reported cash and cash equivalents of $639.7 million as of May 2, 2021 compared with $1,200.3 million at fiscal 2020-end. Notably, the company repaid $300-million term loan in full during the quarter. It also repurchased $315 million in the quarter alone.

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 low double-digit to mid-teen net revenue growth versus mid-to-high single-digit improvement expected earlier. It also expects operating margin expansion on a year-over-year basis.

Nonetheless, the company projects revenue acceleration to $10 billion over the long term. Also, it expects non-GAAP operating margin to expand to at least 15% over the next five years.

Zacks Rank

Williams-Sonoma — which shares space with At Home Group Inc. HOME, RH RH and Fortune Brands Home & Security, Inc. FBHS in the Zacks Retail - Home Furnishings industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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