Williams-Sonoma (WSM) Q1 Earnings & Sales Top Estimates

Williams-Sonoma Inc.’s (NYSE:WSM) first-quarter 2016 adjusted earnings (excluding one-time items) of 53 cents per share surpassed the Zacks Consensus Estimate of 50 cents by 6%. Earnings also came ahead of the company’s expectation of 48 cents to 52 cents per share and rose 10.4% year over year.

The year-over-year earnings upside can be attributed to an improved selling, general and administrative (SG&A) expense ratio and solid revenues.

Net revenue of $1.098 billion surpassed the Zacks Consensus Estimate of $1.080 billion by 1.76%. Net sales rose 6.5% year over year driven by higher comparable brand revenues. Sales surpassed the company’s expected range of $1.07 billion to $1.09 billion.

Comparable Brand Revenues

Comparable brand revenues grew 4.5% in the quarter, slightly lower than 4.6% increase recorded in the prior-year quarter. Comps were within the company’s estimated increase range of 3% to 6%. All the brands, except Pottery Barn and PBteen, reported a higher growth rate of comparable brand revenues compared to the year-earlier quarter.

Williams-Sonoma brand’s comparable brand revenues increased 3.5%, higher than 2.7% growth in the prior-year quarter, driven by double-digit comp increase in e-commerce.

Pottery Barn’s comparable brand revenues were up 0.2%, lower than 2.4% increase in the prior-year quarter. The current quarter’s decrease was due to weak sales trends in consumable businesses, tabletop and decorative accessory.

Pottery Barn Kids’ comparable brand revenues increased 1.7%, higher than 0.8% upside in the year-ago quarter.

West Elm’s comparable brand revenues increased 19% compared with 15.3% rise in the prior-year quarter, as the brand delivered strong performance across all the channels and categories.

PBteen’s comparable brand revenues increased 1.9% lower than 3% increase in the year-ago quarter.

Segment Details

E-commerce (formerly Direct Store Delivery) Segment: The segment reported net revenues of $576 million in the first quarter of 2016, up 8.2% year over year. It contributed 52.5% of revenue in the first quarter of 2016.

Retail: The segment reported net revenue of $522 million in the reported quarter, up 4.7% year over year.

Margin Details

Adjusted operating margin was 7.0% in the quarter, flat compared with the year-earlier quarter due to higher costs related to West Coast port disruptions.

As a percentage of revenues, adjusted selling, general and administrative (SG&A) expenses were 28.8%, an improvement of 100 basis points, driven by advertising efficiencies and a decline in overall expenses.

Second-Quarter 2016 Outlook Soft

Williams-Sonoma expects second-quarter 2016 earnings per share in the range of 54 cents to 60 cents, compared with 58 cents reported in the prior year quarter. The Zacks Consensus Estimate of 59 cents falls within the company guided range.

The company expects net revenue for the quarter in the range of $1.145 billion to $1.175 billion. Comparable brand revenues are expected to increase in the range of 1% to 4%.

2016 Outlook

Williams-Sonoma has maintained its guidance for 2016. The company expects 2016 earnings per share in the range of $3.50–$3.65. The Zacks Consensus Estimate stands at $3.57.

The company also maintained its full year revenue guidance. Net revenue is expected to range between $5.15 billion and $5.25 billion.

Comparable brand revenues are expected to grow in the 3% to 6% range. The company expects adjusted operating margin in the range of 9.8% to 10%. Income tax rate is expected between 37% and 38%.

Williams-Sonoma carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in the retail sector include Ethan Allen Interiors Inc. (NYSE:ETH) , The Home Depot, Inc. (NYSE:HD) and Fortune Brands Home & Security, Inc. (NYSE:FBHS) . All the companies carry a Zacks Rank #2 (Buy).