Williams-Sonoma (WSM) Q1 Earnings Top, Comparable Revenues Up

Williams-Sonoma Inc. (NYSE:WSM) reported earnings beat in first-quarter fiscal 2017. Shares of the company rallied 9.4% in after-hour trading on May 24, after the company bettered estimates in the quarter.

The company’s first-quarter fiscal 2017 adjusted earnings per share (after adjusting for severance costs and pretax expenses) of 51 cents beat the Zacks Consensus Estimate of 48 cents by 6.3%. Earnings, however, declined 3.8% from the year-ago level.

Net revenue of $1.112 billion was slightly above the Zacks Consensus Estimate of $1.107 billion. Net sales increased 1.2% year over year on strong growth at West Elm and Williams-Sonoma brands, along with newer businesses like Rejuvenation and Mark and Graham and international businesses.

Comparable Brand Revenues

Comparable brand revenues increased 0.1% in the quarter, significantly lower than the 4.5% increase recorded in the preceding quarter. Comparable brand revenues for all the brands declined, except West Elm and William Sonoma.

Williams-Sonoma’s comparable brand revenues were up 3.2%, lower than 3.5% growth recorded in the prior-year quarter.

West Elm’s comparable brand revenues increased 6%, compared with the 19% rise in the prior-year quarter.

Pottery Barn’s comparable brand revenues were down 1.4% against a 0.2% increase in the prior-year quarter, which management believes is due to inventory outages across several key categories. However, the figure improved sequentially.

Pottery Barn Kids’ comparable brand revenues decreased 5.7%, compared with 1.7% in the year-ago quarter.

PBteen’s comparable brand revenues decreased 14.3%, as against a 1.9% increase in the year-ago quarter.

Williams-Sonoma, Inc. Price, Consensus and EPS Surprise

Segment Details

E-commerce: The segment reported net revenue of $581 million in quarter, up 0.7% year over year.

Retail: The segment reported net revenue of $531 million in the reported quarter, up 1.8% year over year, primarily driven by West Elm and Pottery Barn.

Margin Details

Adjusted operating margin was 6.1% in the quarter, down 90 basis points (bps) from the year-ago quarter.

Adjusted selling, general and administrative (SG&A) expenses were 29.5% of net revenue or $329 million in the quarter, reflecting an increase of 70 bps year over year.

Financials

Williams-Sonoma has cash and cash equivalents of $93.9 million as of Apr 30, 2017, compared with $99.2 million as of May 1, 2016.

Cash returned to stockholders in the quarter totaled $72 million, comprising $38 million in stock repurchases and $34 million in dividends. As of Apr 30, 2017, the company had approximately $372 million remaining under the current stock repurchase authorization.

Second-Quarter Guidance

Williams-Sonoma expects second-quarter fiscal 2017 earnings per share in the band of 55 cents to 61 cents.

The company expects net revenue in the range of $1.195 billion to $1.230 billion. Comparable brand revenues are likely to grow in the 2% to 5% range.

2017 Guidance

The company maintained its previously stated fiscal 2017 outlook.

Williams-Sonoma expects earnings in the range of $3.45–$3.65 per share.

Net revenue is projected in the range $5.165–$5.265 billion.

Comparable brand revenues are likely to grow in the 1–3% range. The company expects operating margin in the range of 9.4–9.6%. Income tax rate is projected between 36.5% and 37.5%.

Zacks Rank & Stocks to Consider

Williams-Sonoma carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the Retail-Wholesale sector include Papa Murphy's Holdings, Inc. (NASDAQ:FRSH) , Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) and Del Taco Restaurants, Inc. (NASDAQ:TACO) .

Papa Murphy's and Red Robin Gourmet sport a Zacks Rank #1 (Strong Buy). Full-year 2017 earnings for Papa Murphy's are expected to increase 40.6%, while that of Red Robin Gourmet is likely to rise 2.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Del Taco, a Zacks Rank #2 (Buy) stock, is expected to witness 5.8% growth in full-year 2017 earnings.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana. Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>