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Williams-Sonoma Plunges on Retail Weakness

By Steve Symington – Nov 15, 2018 at 7:33PM

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The home-furnishings retailer reaffirmed its outlook, but lackluster comps left the market underwhelmed.

Williams-Sonoma (WSM -1.05%) announced seemingly decent third-quarter 2018 results on Thursday after the market closed, including modest growth from its largest brand concepts and a reiterated full-year outlook.

But that top-line growth was also near the lower end of expectations, causing shares of the home-furnishings retailer to plunge around 12% in after-hours trading as of this writing. Lets open the curtains to get a better view of how Williams-Sonoma kicked off the second half. 

Contemporary room decorated with Pottery Barn products.

IMAGE SOURCE: WILLIAMS-SONOMA.

Williams-Sonoma results: The raw numbers

Metric

Fiscal Q3 2018*

Fiscal Q3 2017

Year-Over-Year Change

Revenue

$1.357 billion

$1.299 billion

4.4%

GAAP net income

$81.5 million

$71.3 million

14.2%

GAAP earnings per diluted share

$1.00

$0.84

19%

DATA SOURCE: WILLIAMS-SONOMA. *FOR THE QUARTER ENDED OCTOBER 29, 2018. GAAP = generally accepted accounting principles.

What happened with Williams-Sonoma this quarter?

  • By comparison, revenue was near the low end of guidance provided in August, which called for a range of $1.355 billion to $1.38 billion. 
  • Adjusted for items like acquisition expenses and stock-based compensation, Williams-Sonoma generated (non-GAAP) earnings of $77.8 million, or $0.95 per share, at the high end of guidance for a range of $0.90 to $0.95.
  • Comparable-brand revenue grew 3.1%, near the low end of guidance for growth of 3% to 5%.
  • By retail concept, comparable-brand revenue climbed 1.4% at Pottery Barn, 8.3% at West Elm, 2.1% at Williams Sonoma, and remained flat at Pottery Barn Kids and Teen.
  • E-commerce net revenue grew 8.2% year over year, to $747 million, or 55% of total sales, up from 53.9% last quarter.
  • Retail net revenue grew 0.2%, to $610 million.
  • Williams-Sonoma repurchased 742,508 shares of common stock for $45 million, or an average price of $61.15 per share. That left $299 million remaining under the company's repurchase authorization at the end of the quarter.

What management had to say

Williams-Sonoma CEO Laura Alber stated:

We delivered third quarter with EPS [earnings per share] at the high end of guidance and continued strength in demand and customer growth. This performance demonstrates our team's strong execution, the ongoing benefits of our strategic initiatives and the power of our multi-channel, multi-brand model. Given the substantial progress we've made in our business this year and our compelling pipeline of innovative product and inspiring content, we believe we are well-prepared to deliver this holiday season and remain on track to meet our full-year guidance.

Looking forward

For the lucrative holiday quarter, Williams Sonoma expects revenue in the range of $1.733 billion to $1.833 billion, assuming comparable-brand growth will be flat to up 5%. On the bottom line, that should translate to adjusted earnings per share of $1.89 to $1.99. For perspective -- and though we don't usually pay close attention to Wall Street's demands -- most analysts were modeling fourth-quarter revenue and earnings near the higher end of both ranges.

Finally, Williams-Sonoma reaffirmed its full-year outlook for revenue of $5.565 billion to $5.665 billion, which still assumes fiscal-2018 comps growth of 3% to 5%. The company also continues to expect full-year adjusted earnings per share of $4.26 to $4.36.

That doesn't mean the company can't outperform relative to expectations when all is said and done this year. But the market is understandably taking a step back from Williams-Sonoma stock today given the company's underperformance on the top line in Q3 and its soft outlook all around for the fourth quarter. 

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Williams-Sonoma. The Motley Fool has a disclosure policy.

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Williams-Sonoma Stock Quote
Williams-Sonoma
WSM
$122.42 (-1.05%) $-1.30

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