High-class home furnisher Williams-Sonoma (NYSE:WSM) reports Q1 2006 earnings results tomorrow. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.
What analysts say:
- Buy, sell, or waffle? Twenty-seven analysts follow Williams-Sonoma, splitting their votes roughly down the middle: 14 buys and 13 holds.
- Revenues. On average, they're looking for 11% sales growth tomorrow, to $797.6 million.
- Earnings. But they're also expecting a 23% decline in profits to $0.17 per share.
What management says:
On March 20, Williams-Sonoma reported its Q4 and full-year 2005 earnings results (fellow Fool Stephen Simpson reviewed them here). CEO Ed Mueller commented that the company is well-positioned to "drive our business and to deliver the 2006 financial guidance that we provided today in a separate press release."
About that guidance: The company provided much more information than we can cover here. (Here's the link if you want the full story.) In summary, Williams-Sonoma projected revenues that bracket the analyst estimates. On earnings, the story is less clear. The company predicted $0.14 to $0.16 per share in GAAP profits (seemingly below analyst targets) but $0.21 to $0.23 non-GAAP. That latter range seems to be more than Wall Street expects, but then again, the analyst estimate figure is ambiguous as to what it includes and excludes. For its part, Williams-Sonoma excluded the effects of accounting changes (such as the expensing of stock options) and a restructuring charge. Basically, if you net out one-time events, the company seems to be looking for 11% sales growth, but flat profits -- thus, lower margins.
What management does:
That's surprising, because the trend at Williams-Sonoma has been toward higher, not lower, margins. Gross margins have been slowly inching up for the last 18 months, and they've held steady for the past year. Same goes for net margins, while operating results have improved over both the last 12 and 18 months.
|
Margins % |
10/04 |
1/05 |
5/05 |
7/05 |
10/05 |
1/06 |
|---|---|---|---|---|---|---|
|
Gross |
40.2 |
40.5 |
40.7 |
40.7 |
40.8 |
40.7 |
|
Op. |
9.5 |
9.9 |
9.9 |
9.8 |
9.9 |
10.1 |
|
Net |
5.9 |
6.1 |
6.1 |
6 |
6.1 |
6.1 |
One Fool says:
In the earnings guidance release, Mueller named "increasing our pre-tax operating margin" as one of his top three goals for fiscal 2006. Why, then, do both management and the analysts seem to be projecting lower margins for tomorrow's news? While not conclusive, I do note that inventories have been rising faster than sales over the last six months. The year-over-year increase in sales for this period was 13%, while inventories grew 17%. That's certainly not a huge disparity, but if the company feels the need to empty out some of its excess inventories at lower prices to bring them closer in line with sales trends, it could be one reason for margins to decline going forward.
Competitors:
- Bed Bath & Beyond (NASDAQ:BBBY)
- Cost Plus (NASDAQ:CPWM)
- Target (NYSE:TGT)
- Restoration Hardware (NASDAQ:RSTO)
Bed Bath and Beyond is a Motley Fool Stock Advisor recommendation. Find more of Tom and David Gardner's favorite stocks with a free 30-day guest pass.
Fool contributor Rich Smith does not own shares of any company named above.
