As we head into the last weekend before spring arrives, most people's minds are turning to leisurely thoughts. There are barbeques to plan, basketball to watch, labor to avoid. Investors in home furnisher Williams-Sonoma (NYSE:WSM) are probably among the few folks thinking about the week ahead. Their company reports Q4 and full-year 2005 earnings before the market opens on Monday, and for their benefit, today we'll review a few numbers to help put Monday's news in context.

Wall Street Wisdom:

  • General consensus. Twenty-seven analysts follow Williams-Sonoma. 14 of them rate the stock a buy, and 13 more a hold.
  • Revenues. The analysts believe that in Q4 2005, Williams-Sonoma grew its sales by 12.5%, to $1.22 billion.
  • Earnings. Profits growth is expected to come in even stronger, up 15% year over year to $1.09 per share.

Margin watch:
Williams-Sonoma's margin improvements won't set any speed records, but they're definitely moving in the right direction. From top to bottom, rolling gross margins are up 50 basis points over the past 18 months; operating margins are up 30 basis points, and net margins are up 20 points. That's solidly respectable growth across the board.

Margins %

8/04

10/04

1/05

5/05

7/05

10/05

Gross

40.3

40.2

40.5

40.7

40.7

40.8

Op.

9.6

9.5

9.9

9.9

9.8

9.9

Net

5.9

5.9

6.1

6.1

6

6.1

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
Despite the company's strong performance, I have some concerns about its balance sheet. Over the past six months, Williams-Sonoma has increased its sales by 14% and its profits by 21% compared to the year-ago period. But at the same time, inventory has been piling up, unwatched. The past six months have seen a 22% year-over-year increase in inventories -- considerably faster growth than the company's sales have managed.

Now, two quarters' numbers don't make a trend, but they do form a pretty good basis for one. So on Monday, in addition to checking Williams-Sonoma's performance on sales and earnings -- the two figures everyone on Wall Street will focus on -- do yourself a favor and devote a few minutes to studying the oft-neglected balance sheet. If inventories grow less than the predicted 12% rate of sales growth (or even better, if they decline), that's fine and dandy. But if they grow faster than sales, now would be a good time to start feeling nervous.

Fool contributor Rich Smith has no interest, short or long, in Williams-Sonoma.