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Williams-Sonoma's Strategic Investments Start to Pay Off

By Steve Symington - May 30, 2019 at 6:06PM

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The home-furnishings leader just crushed earnings expectations and raised its full-year guidance.

Williams-Sonoma (WSM 9.02%) released fiscal first-quarter 2019 results on Thursday after the market closed, trouncing expectations and building on the momentum we saw last quarter, when the home-furnishings retailer outlined efforts to position itself to capitalize on a number of compelling strategic, longer-term growth initiatives. The company also noted its strength has extended so far into the current fiscal second quarter, and raised its full-year earnings outlook to boot.

With the stock up 12% in after-hours trading as of this writing, let's dig in for a better idea of how Williams-Sonoma started the new year.

Contemporary blue, white, and tan room decorated by Williams-Sonoma products.

Image source: Williams-Sonoma.

Williams-Sonoma results: The raw numbers

Metric

Fiscal Q1 2019*

Fiscal Q1 2018

Year-Over-Year Growth

Revenue

$1.241 billion

$1.203 billion

3.2%

GAAP net income

$52.7 million

$45.2 million

16.6%

GAAP earnings per diluted share

$0.66

$0.54

22.2%

Data source: Williams-Sonoma. *For the quarter ended May 5, 2019. 

What happened with Williams-Sonoma this quarter?

  • Adjusted for one-time items, Williams-Sonoma's (non-GAAP) earnings climbed 21% year over year to $0.81 per share. 
  • As of last quarter, the company no longer provides specific quarterly guidance (opting instead to update its full-year outlook as needed). So for perspective, and though we don't usually pay close attention to Wall Street's demands, most analysts were modeling lower adjusted earnings of $0.69 per share on revenue of $1.23 billion.
  • Comparable-brand revenue growth accelerated to 3.5% (from 2.4% last quarter), including 1.5% growth from Pottery Barn, 11.8% growth from West Elm, a 1.6% decline from Williams Sonoma, and 1.2% growth from Pottery Barn Kids & Teen.

What management had to say

CEO Laura Alber stated:

We have had a strong start to 2019 with comparable revenue growth of 3.5%, operating margin expansion, and significant [earnings per share] growth. Customer acquisition and engagement continued to grow as we delivered more compelling and differentiated experiences to our customers. We also reached a significant milestone for our company as we were named, for the first time, to the Fortune 500 largest companies in the U.S. This accomplishment speaks to the hard work and dedication of all our associates, the ongoing support of our loyal customers, and the power of our highly differentiated platform in driving long-term, profitable growth.

Looking forward

Alber added that with their "strong start to the year and the strength we are seeing early in the second quarter," Williams-Sonoma now expects adjusted EPS in the range of $4.55 to $4.75 for the full fiscal-year 2019, marking an increase of a nickel per share from both ends of its previous outlook. The company simultaneously reiterated its guidance for fiscal 2019 revenue of $5.67 billion to $5.84 billion, which still assumes comparable-brand revenue growth of 2% to 5%.

Over the longer term, Williams-Sonoma also says it's targeting growth in both total net revenue and adjusted operating income in the mid- to high-single-digit percent range, as well as "above industry average" returns on invested capital.

In the end, it's hard to argue with this beat-and-raise performance from Williams-Sonoma. And the market is bidding up shares accordingly.

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