Williams-Sonoma (WSM) Up 12% On Q1 Earnings & Revenue Beat

Williams-Sonoma Inc.’s (NYSE:WSM) shares climbed more than 12% on May 30, after reporting first-quarter fiscal 2019 results. Not only the company posted better-than-expected results, it also lifted its fiscal 2019 earnings guidance, given strong business trend.

Non-GAAP earnings of 81 cents per share surpassed the Zacks Consensus Estimate of 68 cents by 19.1%. The figure also grew 21% year over year.

Moreover, revenues of $1,241.1 million beat the consensus mark of $1,222 million by 1.6% and grew 3.2% year over year.

Comps increased 3.5% in the fiscal first quarter compared with 2.4% growth in fourth-quarter fiscal 2018. Yet, the reported figure was down from 5.5% in the year-ago quarter.

The company’s West Elm brand’s comps grew 11.8% compared with 9% growth in the prior-year quarter. Pottery Barn and Pottery Barn Kids and Teen grew 1.5% and 1.2% versus 2.7% and 5.3% in the prior-year quarter, respectively. However, the Williams (NYSE:WMB) Sonoma brand’s comps declined 1.6% in the quarter compared with 5.6% comps growth registered in the year-ago period.

Operating Highlights

Non-GAAP gross margin was 35.9%, down 10 basis points (bps) from first-quarter fiscal 2018. The downside was mainly due to higher shipping costs, primarily driven by a greater mix of furniture sales. This was partly offset by benefits from product margin expansion and strong occupancy leverage.

Non-GAAP selling, general and administrative (SG&A) expenses accounted for 28.9% of net revenues compared with 29.7% in the year-ago quarter, reflecting a decrease of 80 bps owing to leverage across advertising, employment and general expenses, thanks to benefits from cost-savings initiatives.

Non-GAAP operating margin was 7% in the quarter, up 70 bps year over year.

Financials

Williams-Sonoma reported cash and cash equivalents of $107.7 million as of May 5, 2019 compared with $339 million on Feb 3, 2019.

During the fiscal first quarter, the company invested $36 million and returned more than $70 million to stockholders through dividends and share repurchases, comprising $37 million in dividends and $34 million in share repurchases.

Fiscal 2019 Guidance Lifted

Given solid fiscal first quarter and the growth trend witnessed by Williams-Sonoma in early second quarter, the company now expects non-GAAP earnings per share in the band of $4.55-$4.75, up from the prior expectation of $4.50-$4.70.

Net revenues are projected in the range of $5.670-$5.840 billion. Comps are likely to grow 2-5% year over year. Non-GAAP operating margin is expected to be in line with the fiscal 2018 level.

It expects an incremental buyback of shares under a repurchase authorization of approximately $678 million.

The company expects to close 30 stores during the year, bringing down the total store count to 595 by the end of the year.

Long-Term View Reaffirmed

Total net revenues are expected to grow in mid-to-high single digits. Non-GAAP operating income is likely to be in line with revenue growth, thereby driving operating margin stability. The company expects above-industry average ROIC in the long term.

Zacks Rank & Other Key Picks

Currently, Williams-Sonoma carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the Retail-Wholesale sector include Ethan Allen Interiors Inc. (NYSE:ETH) , PriceSmart, Inc. (NASDAQ:PSMT) and Target Corporation (NYSE:TGT) , each holding a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ethan Allen’s earnings are expected to grow 17.8% in 2019.

PriceSmart has an impressive earnings surprise history, having outpaced the Zacks Consensus Estimate in three of the trailing four quarters, with the average positive surprise being 20.7%.

Target’s expected long-term earnings growth rate is 7.1%.

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