Williams-Sonoma, Inc. Decorates a Decent Quarter

Image source: Williams-Sonoma.

Williams-Sonoma (WSM -0.54%) just reported fiscal third-quarter 2015 results. With shares currently down around 14% year to date, the specialty home goods retailer gave investors a clearer picture at what to expect as we head into the crucial holiday season.

But before we focus on that picture, let's take a closer look at what Williams-Sonoma accomplished in Q3:

Williams-Sonoma results: The raw numbers

Data source: Williams-Sonoma.

What happened with Williams-Sonoma this quarter?

• Revenue included a 7% year-over-year increase from e-commerce to $628 million (or 51% of total sales), and 8.6% growth in retail sales to $604 million
• Excluding international growth, retail revenue would have climbed 4.3%
• EPS was bolstered by $71 million in stock repurchases in Q3 (922,127 shares at $77.54 per share)
• $90 million remains under Williams-Sonoma's current repurchase authorization
• Both the top and bottom lines exceeded guidance, which called for Q3 revenue of $1.19 billion to $1.22 billion, and EPS of $0.68 to $0.73
• 4.5% comparable-brand revenue growth, including:
• 2% comparable-brand growth at Pottery Barn
• 1.2% at Williams-Sonoma
• 15.7% at West Elm
• 4.7% Pottery Barn Kids
• a 0.9% decline in comps at PBteen
• Gross margin declined 110 basis points to 36.6%
• Operating margin fell 20 basis points from the same year-ago period to 9%
• At the same time, selling, general, and administrative expenses declined to 27.6% of revenue, from 28.6% in last year's Q3
• Inventories rose a healthier 12.5% year over year to $1.102 billion as of the end of the quarter

What management had to say 
As CEO Laura Aber said:

We are pleased with our solid third quarter results, which speak to the power of our brands and our ability to execute our customer-focused strategy. [...] Looking ahead, while the retail landscape and consumer demand has been more volatile, we believe our balanced portfolio of differentiated brands and strong multi-channel platform positions us for ongoing market share gains. Our focus remains on executing our strategic initiatives to drive long-term sustainable growth for our shareholders."

Looking forward 
For the current quarter, Williams-Sonoma anticipates revenue of $1.575 billion to $1.63 billion, comparable brand revenue growth of 2% to 5% and diluted EPS of $1.53 to $1.62.

Consequentially, rather than reiterating guidance as it did last after last quarter's beat, Williams-Sonoma raised the lower ends of its expected full-year revenue and earnings ranges. As it stands, Williams-Sonoma now anticipates fiscal 2015 revenue of $4.965 billion to $5.02 billion (compared to $4.95 billion to $5.02 billion before), comparable brand revenue growth of 4% to 6%, and diluted EPS of $3.36 to $3.45 (up from $3.35 to $3.45 previously). That still includes an estimated negative impact from the West Coast port slowdown of roughly $30 million to $40 million to revenue, and a reduction to EPS of $0.10 to $0.12.

During the subsequent conference call, Aber elaborated that Williams-Sonoma should benefit in the holiday quarter from its "compelling seasonal product lineup in conjunction with a more strategic marketing calendar [...]." In addition, Aber says, "We also have the opportunity to deliver better service because we have better in-stock position."

All in all, this slightly better-than-expected report offered no big surprises for Williams-Sonoma shareholders. Going forward, investors should watch closely to see whether the company can deliver as it hopes in the crucial holiday season.