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Williams-Sonoma, Inc. Starts the Year Strong

By Steve Symington - May 26, 2016 at 1:56PM

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There were no big surprises in the home furnishings company's fiscal first-quarter report, but that's not a bad thing.

Image source: Williams-Sonoma.

Williams-Sonoma (WSM -4.44%) reported fiscal first-quarter 2016 results Wednesday after the bell. With shares trading roughly flat as of this writing -- and with its underwhelming holiday performance from March still fresh on investors' minds -- by most measures the home furnishings specialist achieved a reasonably solid start to the year. Let's take a closer look at what Williams-Sonoma accomplished.

Williams-Sonoma results: The raw numbers


Q1 2016 Actuals

Q1 2015 Actuals

Growth (YOY)


$1.098 billion

$1.031 billion


Net income

$39.6 million

$44.8 million


Earnings per diluted share




Data source: Williams-Sonoma. 

What happened with Williams-Sonoma this quarter?

  • On an adjusted basis -- which excludes $0.09 per share in one-time severance-related reorganization charges -- earnings were $0.53 per share, up 10.4% year over year.
  • Both the top and bottom lines came in above guidance provided last quarter, which called for lower revenue of $1.07 billion to $1.09 billion, and adjusted diluted EPS of $0.48 to $0.52.
  • Revenue growth was driven by 8.2% growth e-commerce sales, to $576 million (or 52.5% of total sales), and 4.7% growth in retail sales, to $522 million.
  • Comparable-brand revenue growth was a healthy 4.5%, within guidance calling for 3% to 6% growth, including:
    • 0.2% comparable-brand growth at Pottery Barn.
    • 3.5% growth at Williams-Sonoma.
    • 19% growth at West Elm.
    • 1.7% growth at Pottery Barn Kids.
    • 1.9% growth at PBteen.
  • EPS was once again bolstered by share repurchases over the past year, including $41 million spent to repurchase 727,629 shares of common stock in the first quarter at an average cost of $55.85 per share.
  • $521 million remains under Williams-Sonoma's current repurchase authorization, including the new $500 million authorization put into place last quarter.
  • Gross margin decreased to 35.8%, compared with 36.8% in last year's first quarter, primarily due to increased shipping and fulfillment costs, occupancy deleveraging from supply chain operations, and higher sales from lower-margin franchises.
  • Operating margin fell 120 basis points year over year, to 5.8%, but would have remained steady excluding unusual business events.
  • Selling, general, and administrative expenses increased slightly to 30% of revenue, compared with 29.8% of revenue in last year's first quarter.
  • Inventories increased 0.2% year over year, to $945 million, at the end of the quarter.

What management had to say 

Williams-Sonoma CEO Laura Alber stated:

In the first quarter we saw accelerated growth in West Elm and Williams-Sonoma, as well as improvement across the Pottery Barn brands. We also saw positive results from our inventory and supply chain initiatives. We believe our strong brands and profitable multi-channel strategy create a sustainable competitive advantage. We are executing against our key growth and profitability initiatives, and believe we are on track to deliver on both our near and longer-term goals.

Looking forward 

For the current quarter, Williams-Sonoma anticipates revenue of $1.145 billion to $1.175 billion, comparable-brand revenue growth of 1% to 4%, and diluted EPS of $0.54 to $0.60. And for the full-year fiscal 2016, Williams-Sonoma reiterated guidance for revenue of $5.15 billion to $5.25 billion, comparable-brand revenue growth of 3% to 6%, and adjusted diluted EPS of $3.50 to $3.65. One notable difference, however: These 2016 ranges exclude the aforementioned one-time reorganization charges of $13 million (or $0.09 per share) incurred in the first quarter, which was slightly higher than the $10 million to $12 million management told investors to expect during last quarter's call.

While today's report hardly contains any overwhelmingly positive news, I think investors should be encouraged that Williams-Sonoma largely delivered on its promises and remains on track with its long-term goals.

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