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Williams-Sonoma (WSM) Q3 Earnings Top, View Up, Stock Falls

Williams-Sonoma Inc. WSM reported better-than-expected results for third-quarter fiscal 2021 (ended Oct 31, 2021). The company’s earnings and revenues beat the Zacks Consensus Estimate as well as improved on a year-over-year basis, courtesy of strength across all brands along with accelerated e-commerce growth.

Yet, shares of this leading home furnishing retailer tumbled 7.7% in the after-hours trading session on Nov 18. Investors’ sentiments might be impacted by the expectation of heightened supply chain disruptions in the future

Impressively, it lifted fiscal 2021 outlook once again, courtesy of encouraging macro trends.

Laura Alber, president and CEO of Williams-Sonoma, said, “As we enter the fourth quarter, we are seeing strong sales and margins continuing. We are thrilled with our customers' response to our holiday and gifting assortments, and we are ready to drive an outstanding finish to the year. With our strong results to date, our winning positioning in the industry, and our outperforming growth strategies, we are more confident than ever in the long-term strength of our business.”

Earnings & Revenue

Non-GAAP adjusted earnings of $3.32 per share surpassed the Zacks Consensus Estimate of $3.11 by 6.8%. The figure also increased 30% from $2.56 per share reported a year ago.

WilliamsSonoma, Inc. Price, Consensus and EPS Surprise

WilliamsSonoma, Inc. price-consensus-eps-surprise-chart | WilliamsSonoma, Inc. Quote

Revenues of $2.05 billion beat the consensus mark of $1.99 billion by 2.9% and grew 16% year over year. The impressive revenues were driven by strong growth across all brands, including ecommerce’s contribution of 67% to total revenues.

Comps increased 16.9% versus 24.4% growth in the year-ago period. Comps at West Elm increased 22.5% compared with 21.8% growth registered in the prior-year quarter. Comps in the Pottery Barn brand grew 15.9% versus 24.1% growth in the prior-year quarter. Williams Sonoma brand’s comps rose 7.6% compared with 30.4% growth in the year-ago quarter. Pottery Barn Kids and Teen’s comps rose 16.9% versus 23.8% growth in the year-ago quarter.

Operating Highlights

Non-GAAP gross margin was 43.7%, up 370 basis points (bps) from the year-ago period. The upside was primarily caused by higher merchandise margins and occupancy leverage in the quarter.

Non-GAAP selling, general and administrative expenses were 27.5% of net revenues compared with 24.3% in the year-ago quarter, reflecting an increase of 320 bps. Furthermore, non-GAAP operating margin expanded 60 bps from the year-ago period to 16.3% for the quarter.

Financials

Williams-Sonoma reported cash and cash equivalents of $656.9 million as of Oct 31, 2021 compared with $1,200.3 million at fiscal 2020-end. Williams-Sonoma returned more than $788 million to shareholders in the form of $135.2 million in dividends and $652.7 million in share repurchases.

Raised Fiscal 2021 Guidance

Given year-to-date business strength and solid macro trends, the company has raised its fiscal 2021 guidance. Williams-Sonoma now expects revenues to witness 22-23% growth versus high-teens to low-20s improvement expected earlier. It also expects non-GAAP operating margin between 16.9% and 17.1% for the year compared with 16-17% projected earlier.

Furthermore, the company now projects revenue acceleration to $10 billion over the next four years (a year earlier than the previous projection).

Zacks Rank

Williams-Sonoma currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recent Releases in the Retail-Wholesale Sector

Fastenal Company FAST — which currently carries a Zacks Rank #2 — reported impressive third-quarter 2021 results.

Fastenal’s top and bottom lines not only beat the respective Zacks Consensus Estimate but also improved on a year-over-year basis.

Builders FirstSource BLDR — which currently carries a Zacks Rank #1 — reported solid results for third-quarter 2021, wherein earnings and net sales surpassed the Zacks Consensus Estimate as well as increased significantly on a year-over-year basis.

Builders FirstSource’s results were driven by an increase in net sales and gross margin, partially offset by higher tax and selling, general & administrative expenses.

The Home Depot, Inc. HD — which currently carries a Zacks Rank #1 — posted third-quarter fiscal 2021 results, wherein earnings and sales beat the Zacks Consensus Estimate and improved year over year.

Home Depot gained from continued strong demand for home-improvement projects, robust housing market trends and ongoing investments.


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