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Williams-Sonoma, Inc. Offers Drab Holiday Earnings

By Steve Symington – Mar 16, 2016 at 5:18PM

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After beating expectations for two consecutive quarters, the home-furnishings specialist ended 2015 on a low note.


Image source: Williams-Sonoma.

Williams-Sonoma (WSM -0.15%) just reported fiscal fourth-quarter 2015 results. With shares already trading down nearly 30% over the past year, the specialty home-goods retailer attempted to take away some of the sting of an underwhelming holiday quarter with a dividend increase and big share-repurchase authorization.
But before we get there, let's take a closer look at what Williams-Sonoma accomplished in Q4.

Williams-Sonoma results: The raw numbers


Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)


 $1.586 billion

 $1.542 billion


Net income

 $141.1 million

 $147.0 million


Earnings per diluted share





What happened with Williams-Sonoma this quarter?

  • Both the top and bottom lines were near the low end of guidance provided last quarter, calling for revenue of $1.575 billion to $1.63 billion, and diluted EPS of $1.53 to $1.62.
  • Revenue growth was driven by 2.9% year-over-year increases in sales from e-commerce, to $791.9 million (or 49.9% of total sales), and 2.9% growth in retail sales, to $794.4 million.
  • Comparable-brand revenue growth remained steady at 0.8% from the same year-ago period, also near the low end of guidance for 2% to 5% growth, including:
    • 2% comparable-brand declines at Pottery Barn.
    • 0.9% comps growth at Williams-Sonoma.
    • 12.8% growth at West Elm.
    • 0.1% growth at Pottery Barn Kids.
    • 12.2% comps decline at PBteen.
  • EPS was bolstered by share repurchases, including $28 million repurchased in the fourth quarter (or 464,608 shares of common stock at $61.34 per share).
  • $62 million remains under Williams-Sonoma's current repurchase authorization.
  • A new $500 million, three-year repurchase program was authorized to be executed over the next three years
  • The quarterly cash dividend increased by 6%, to $0.37 per share.
  • Gross margin decreased to 38.3%, compared with 40.1% in last year's fourth quarter, primarily related to shipping and fulfillment costs, occupancy deleveraging from supply-chain operations, and higher sales from lower-margin franchises.
  • Operating margin fell 140 basis points, to 14%. But it would have declined just 50 basis points had it not been for "unusual business events," including Williams-Sonoma's receiving its share of a Visa/MasterCard antitrust litigation settment in last year's fourth quarter.
  • Selling, general, and administrative expenses declined to 24.3% of revenue, compared with 24.7% of revenue in last year's fourth quarter.
  • Inventories increased 10.2% year over year, to $978 million at the end of the fiscal year.

What management had to say 
Williams-Sonoma CEO Laura Alber stated:

In 2015, we delivered top- and bottom-line performance within our guidance ranges despite a challenging end to the year. We are reporting record revenue and earnings per share for the year as a result of the strength of our portfolio of outstanding brands, our balanced multichannel model, and solid execution. Disciplined management allowed us to meet our commitments as we adjusted to an evolving consumer and competitive landscape. Our brands are highly aspirational and relatable at the same time and create a platform for growth.

Looking forward 
"Entering 2016, we believe we have the opportunity to strengthen our competitive positioning including our product, service, and value proposition for our customers, which will allow us to profitably grow market share," Alber elaborated. "We are reasserting our product leadership, revolutionizing our approach to inventory, transforming our marketing, and changing our approach to real estate and the store experience."

As such, Williams-Sonoma reiterated its long-term outlook for revenue growth in the mid- to high-single-digit percentage range, and earnings-per-share growth in the low double digits to the mid-teens. 

In the meantime, Williams-Sonoma anticipates fiscal first-quarter revenue of $1.07 billion to $1.09 billion, comparable brand revenue growth of 3% to 6%, and adjusted diluted EPS of $0.48 to $0.52. For the full fiscal year 2016, Williams-Sonoma expects revenue of $5.15 billion to $5.25 billion, comparable brand revenue growth of 3% to 6%, and adjusted diluted EPS of $3.50 to $3.65. These ranges exclude expected one-time reorganization charges of $10 million to $12 million in the current quarter.

As of this writing, shares of Williams-Sonoma are down around 7% in Wednesday's after-hours trading -- but it's hard to blame the market, considering the company fell short during its key holiday season. For now, investors should keep a close eye on Williams-Sonoma's reorganization progress and whether those efforts begin to bear fruit as Williams Sonoma chases its long-term growth goals in the coming quarters.

Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends MasterCard and Visa. The Motley Fool recommends Williams-Sonoma. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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