Williams-Sonoma (WSM) Up 6.8% Since Last Earnings Report: Can It Continue?

It has been about a month since Williams-Sonoma (WSM) last reported earnings. Shares have risen about 6.8% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Williams-Sonoma headed for a recession? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Williams-Sonoma first quarter earnings and revenue estimates

Williams-Sonoma reported decent results in the first quarter of fiscal 2024 (ended April 28, 2024). Earnings and net revenue surpassed the Zacks Consensus Estimate for the quarter. Year over year, revenues decreased, but profits increased.

Discussion about earnings, revenues and remuneration

Non-GAAP earnings per share (EPS) of $4.07 surpassed the Zacks Consensus Estimate of $2.78 by 46.4%. Additionally, the rate increased by 54.2% from $2.64 recorded a year ago.

Net revenues of $1.66 billion topped the consensus estimate of $1.65 billion by 0.3% but fell 5.4% year-over-year.

In the first quarter of the fiscal year, rates fell 4.9% compared to 6% in the year-ago period.

West Elm brand sales decreased 4.1% compared to 15.8% recorded in the same quarter last year. Pottery Barn compute values declined 10.8% compared to the 0.4% recorded in the year-ago quarter. Williams-Sonoma rates rose 0.9% compared to the 4.4% decline recorded in the year-ago quarter. Pottery Barn Kids and Teens volume increased 2.8% compared to a 3.3% decline reported in the year-ago quarter.

Operational highlights

Gross margin was 48.3%, an increase of 970 basis points (bps) compared to last year. The increase was due to higher merchandise margins and lower costs resulting from supply chain efficiency.

Non-GAAP selling, general and administrative expenses accounted for 28.8% of net revenues, reflecting a year-over-year increase of 310 basis points. Non-GAAP operating margin increased 600 basis points from the prior year to 19.5% in the quarter.

Financial

As of April 28, 2024, Williams-Sonoma reported cash and cash equivalents of $1.25 billion, compared to $1.26 billion at the end of fiscal 2023. Net cash from operating activities was $226.8 million in the first three months of fiscal 2024, up from $342.5 million a year earlier.

Raising budget guidance for 2024

Williams-Sonoma continues to expect fiscal 2024 net revenues to be in the range of -3% to +3%. Rates for this year are expected to range from -4.5% to +1.5%.

The company currently expects operating margin to range from 17.6% to 18% (versus previous expectations of 16.5% to 16.8%).

Over the longer term, the company continues to forecast mid- to high-single-digit annual net revenue growth and mid-to-high operating margins.

How have estimates changed since then?

It turns out that estimate revisions have been trending upwards over the past month.

VGM results

At this point, Williams-Sonoma boasts a great A-level growth score, which is a grade with the same momentum score. Plotting a somewhat similar path, the stock is rated a B on the value side, putting it in the second quintile within this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show an upward trend, and the scale of these corrections looks promising. It’s no surprise that Williams-Sonoma has a Zacks Rank #1 (Strong Buy). We expect an above-average rate of return on shares in the coming months.

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