Williams-Sonoma Shows Progress, Makes a High-Tech Acquisition

Williams-Sonoma (WSM 0.36%) released third-quarter 2017 results on Thursday after the market closed, demonstrating relative stability with healthy demand across its various store concepts. The home-furnishings retailer also announced an intriguing acquisition of 3D imaging start-up Outward, signaling a deeper dive into the world of augmented reality for its digital platforms.

Let's take a look around, then, to get a better feel for how Williams-Sonoma kicked off the second half of the year and what investors should expect from the company in the quarters ahead.

Image source: Williams-Sonoma/Pottery Barn.

Williams-Sonoma results: The raw numbers

Data source: Williams-Sonoma.

What happened with Williams-Sonoma this quarter?

• Hurricanes in Texas, Florida, and Puerto Rico during the quarter resulted in lost sales of roughly $7 million, and a negative impact to earnings of roughly $0.02 per share.
• Even still, these results were slightly above the midpoints of Williams-Sonoma's guidance provided in August, which called for revenue of $1.27 billion to $1.31 billion, and earnings per diluted share of $0.80 to $0.87.
• Comparable-brand revenue grew 3.3%, accelerating slightly from 2.8% last quarter, and in line with guidance for 2% to 5% growth.
• Comparable-brand revenue by concept included a 0.3% decline at Pottery Barn, 2.3% growth at Williams Sonoma, 11.5% growth at West Elm, 0.1% growth at Pottery Barn Kids, and 3% growth at PBteen.
• E-commerce revenue grew 6.4% to $690 million, increasing 100 basis points as a percentage of total revenue to 53.1%.
• Retail net revenue climbed 2.1% to $609 million.
• Repurchased roughly 1.3 million shares of common stock for $61 million, or an average cost of $46.84 per share. That left $256 million remaining under the company's current stock repurchase program.
• In a separate press release, announced the acquisition of Outward, Inc., a 3D imaging and augmented reality platform focused on the home-furnishings and decor industry, in an all-cash deal for $112 million. The purchase should close by the end of calendar year 2017.
  • "This strategic acquisition will enable WSI to enhance and extend its high-touch customer service platform," Williams-Sonoma stated, "and to develop technologies with Outward that further transform the shopping experience for home furnishings."

What management had to say

Williams-Sonoma CEO Laura Alber added:

Our third quarter results demonstrate the effectiveness of our strategic priorities to deliver value, quality and excellent customer service. During the quarter, strong execution against our product and digital initiatives drove new customer acquisition and top-line expansion in a competitive and dynamic retail environment. Importantly, our demand during the quarter exceeded or was at least equal to net revenues across all of our brands -- most notably in Pottery Barn and PBteen -- which is a strong indication of the health of our business. Additionally, our investments in digital innovation and cross-brand services, as well as continued optimization of our supply chain, position us to further differentiate our business and to deliver long-term profitable growth.

Looking forward

For the holiday quarter, Williams-Sonoma anticipates revenue of $1.610 billion to $1.675 billion, assuming comparable-brand revenue growth of 2% to 6%. On the bottom line, fourth-quarter earnings per diluted share should arrive in the range of $1.49 to $1.64. By comparison -- and though we don't typically pay close attention to Wall Street's demands -- consensus estimates predicted higher earnings of $1.65 per share on revenue of $1.63 billion.

To be fair, however, during the subsequent conference call CFO Julie Whalen pointed out that at the high ends of its guidance ranges the company would be delivering revenue and EPS growth of 6%, despite the above-mentioned investments to drive future growth.

Nonetheless, Williams-Sonoma reduced the high end of its full fiscal-year earnings outlook by $0.05 per share, resulting in a new 2017 adjusted EPS range of $3.45 to $3.60. But it also increased its full-year revenue guidance to a range of $5.225 billion to $5.290 billion (up from $5.165 billion to $5.265 billion previously), assuming comparable-brand revenue growth of 2% to 4% (up from 1% to 3% before).

In the end -- keeping in mind the stock is up more than 18% over the past three months alone -- the market might frown upon Williams-Sonoma's decision to forgo some profits in favor of taking share and pursuing top-line growth. But in today's difficult retail environment, I think that's a wise decision that should help the company emerge even stronger when retail trends finally turn for the better.