Williams-Sonoma (WSM) Up 27% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Williams-Sonoma (WSM). Shares have added about 27% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Williams-Sonoma due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Williams-Sonoma Q4 Earnings & Revenues Beat Estimates

Williams-Sonoma Inc. posted better-than-expected fourth-quarter fiscal 2019 results in the quarter under review. However, the company suspended its full-year guidance due to the global impact of coronavirus pandemic.

Nonetheless, West Elm — its biggest growth catalyst — continues to renew strength in Pottery Barn brands. Also, cross-brand initiatives such as The Key, Business-to-Business as well as in-home Design Crew are expected to become important growth drivers.

Non-GAAP earnings of $2.13 per share surpassed the Zacks Consensus Estimate of $2.05 by 3.9%. The figure also inched up 1.4% year over year.

Moreover, revenues of $1,843.6 million beat the consensus mark of $1,815 million by 1.5% and increased 0.4% year over year.

Comps increased 7.6% in fiscal fourth quarter compared with 5.5% growth in the preceding quarter and 2.4% in the year-ago quarter.

Comps in the West Elm brand increased 13.9% compared with 11.1% growth in the prior-year quarter. Pottery Barn’s comps rose 6.7% against 0.4% decline in the year-ago quarter. Comps in Pottery Barn Kids and Teen increased 7.9% compared with 1.6% growth registered in the prior-year quarter. Notably, the Williams Sonoma brand’s comps rose 3.3% against 2.1% decline in the preceding quarter and 0.1% growth registered in the year-ago quarter.
 
Operating Highlights

Non-GAAP gross margin was 37.6%, down 110 basis points (bps) from fourth-quarter fiscal 2018. The downside was primarily caused by lower occupancy leverage, higher shipping costs stemming from a greater mix of furniture sales and the impact of the implementation of China tariffs.

Non-GAAP selling, general and administrative expenses accounted for 26.1% of net revenues compared with 26.9% in the year-ago quarter, down 80 bps. The upside was driven by leverage across employment and advertising from higher sales as well as consistent cost-saving initiatives. However, non-GAAP operating margin contracted 30 bps to 11.6% in the quarter.

Financials

Williams-Sonoma reported cash and cash equivalents of $432.2 million as of Feb 2 compared with $339 million on Feb 3, 2019.

During fiscal fourth quarter, the company invested $65 million in the business and returned $74 million to its stockholders through dividend payouts as well as share repurchases. Notably, the company paid out $38 million worth of dividends and repurchased about $36 million shares.

Fiscal 2019 Highlights

Non GAAP earnings came in at $4.84 per share that exceeded the high-end of the guidance and increased 8.5% year over year. Comps growth was 6% (at the high-end of the guidance range), with positive comps growth across its brands, including West Elm at 14.4%, Pottery Barn at 4.1% as well as Pottery Barn Kids and Teen at 4.5%.

Total revenues were $5,898 million, up 4% from fiscal 2018 end.

Fiscal 2020 Guidance Suspended

Given the unpredictable effects of the coronavirus on consumer behavior and economic activity in general, the company decided to temporarily suspend its full-year guidance.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -98.76% due to these changes.

VGM Scores

Currently, Williams-Sonoma has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Williams-Sonoma has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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