Williams-Sonoma (NYSE:WSM) stock was falling by 3.2% on Wednesday after the market close, as the company reported lackluster numbers for the quarter ended on Feb. 1. Let's go over the latest earnings report from Williams-Sonoma to highlight the main takeaways for investors.
Slowing sales growth
Total revenues during the fourth quarter of fiscal 2014 were $1.54 billion, a 5.2% increase over the $1.47 billion in the same period last year. The number came in below expectations, as Wall Street analysts were on average expecting $1.57 billion in sales for the quarter.
Comparable brand revenues grew 5.1% during the period. While the number is quite strong for a company in its business, it also represents a considerable deceleration versus a much stronger 8.7% increase reported in the third quarter of fiscal 2014. In Q4 2013, Williams-Sonoma delivered a 10.4% increase in comparable brand revenues, so growth slowed down on a year-over-year basis, too.
West Elm keeps firing on all cylinders. Comparable brand revenues jumped 19.6% versus a 17.4% increase in the previous quarter and an 18.3% growth rate in the year-ago quarter. On the other hand, Pottery Barn was the main weak spot in the report. Comparable brand sales grew only 2.9% versus a 7% increase in the third quarter of fiscal 2014 and a much bigger 14.6% increase in the fourth quarter of fiscal 2013.
The online segment is particularly important for Williams-Sonoma, and the company keeps doing well in this crucial area. E-commerce revenues grew 9% year over year to $770 million. The online channel brought in 50% of sales during the last quarter, an increase versus 48% of sales produced via e-commerce during the year-ago quarter.
Profits are still succulent
Operating margin increased to 15.4% of revenues during the quarter, versus 14.8% in the fourth quarter of fiscal 2013. Williams-Sonoma received its share of an antitrust litigation settlement during the period. Excluding this non-recurring item, operating margin was 14.9% during the quarter.
Diluted earnings per share grew 13.8% year over year to $1.57 from $1.38. Excluding unusual business events, adjusted earnings per share increased 10.1% to $1.52. The number was in line with Wall Street expectations.
Williams-Sonoma has an extraordinary track record of consistency. The company hasn't missed Wall Street earnings forecasts even once over the past five years. Considering the business was hurt by external factors during the last quarter, it's good to see that the company is still delivering solid earnings under challenging conditions.
President and CEO Laura Alber highlighted how the company's brand power and omnichannel approach to the business are delivering consistent results. However, Alber also said the West Coast ports slowdown will continue hurting the company in fiscal 2015, especially during the first quarter:
Our powerful brands and the competitive advantage provided by our multi-channel platform and entrepreneurial culture delivered another year of strong returns for our shareholders. In 2014, we experienced growth in all of our brands and across our channels. Our highly profitable e-commerce business represented more than 50% of our revenues in 2014, a significant milestone for Williams-Sonoma, as we capitalize on our position at the intersection of retail and technology. We are very pleased with our fourth quarter results despite the effects of the west coast port disruption. Unfortunately, we expect this disruption to continue and to have a more significant impact through the first half of 2015.
The West Coast port slowdown is expected hurt revenues by $30 million to $40 million, while the reduction in net earnings per share is calculated in the range of $0.10 to $0.12 for the whole fiscal 2015 year. Including this impact, management expects revenues of between $4.95 billion and $5.02 billion and earnings per share in the range of $3.35 to $3.45.
Wall Street analysts are on average expecting $5.06 billion in sales and $3.63 in earnings per share for the coming year, so both sales and earnings guidance came in below expectations.
The company raised dividends by 6% to $0.35. This puts the dividend yield at a modest 1.7% at current prices. While it's nice to see Williams-Sonoma raising dividends, the company will hardly generate a lot of traction among dividend-oriented investors with its payout.
Williams-Sonoma is a top-notch retailer with a consistent track record of performance and major strengths such as brand differentiation and a big online presence. Port slowdowns were a drag on revenues in the last quarter, but the company still managed to deliver healthy profits. The latest report from Williams-Sonoma isn't particularly exciting, but the business seems to be quite solid.