Williams-Sonoma (NYSE:WSM) shares are up more than 4% in early Thursday trading on the back of its latest quarterly earnings, which topped profit expectations.
The retailer reported third-quarter earnings of $3.66 per share, $0.32 better than the analyst estimate of $3.34. However, revenue in the quarter was below expectations, coming in at $1.85 billion versus the consensus estimate of $1.94 billion.
The company said its gross margin was 44.4%, +290bps YoY, with a selling margin of +450bps due to lower shipping and freight costs and occupancy deleverage of 160bps. In addition, comparable brand revenue declined by 14.6%, while merchandise inventories fell by 17.2% to $1.4 billion compared to last year.
"We are proud to deliver another quarter of strong earnings, significantly exceeding expectations, despite a challenging macroeconomic backdrop for our industry," said Laura Alber, the company's CEO.
She added that the results were achieved in an environment "filled with ongoing consumer hesitancy on high-ticket discretionary furniture spend and elevated levels of promotional activity."
Reacting to the report, analysts at Telsey Advisory Group said the company's higher operating margin drove the EPS beat.
"Williams-Sonoma's 3Q23 result reflects a more challenging landscape for home furnishings retailers, with comparable brand sales coming in much lower than expected at (14.6%). The weakness was evident in the brands that are more heavily weighted toward furniture," the analysts said, who maintained an Outperform rating and a $170 price target on the stock.
They noted that the challenging top-line trends appear to have carried forward to November, with Williams-Sonoma again lowering its sales guidance for 2023 to between -10% and -12% from -5% to -10% previously.
"All in, while the volatile and worsening top line is an incremental concern, this should be tempered by the better-than-expected profitability," they concluded.