After beating second quarter expectations and guiding third
quarter sales growth better than expected, shares of specialty retailer Williams-Sonoma (WSM
71.32, +8.71, +13.91%) trade to an almost three-year high, extending yesterday’s advance
which saw the stock reclaim its 50-day simple moving average (60.37).
Some on the Street pointed to moving parts in the quarter which impacted results. Notably, certain accounting changes which became effective at the beginning of the year allowed for the exclusion of certain items which would not have provided as robust a performance as the headline indicates.
For instance, while the company’s $0.77 earnings per share (EPS) result was enough to beat the Street expectation for the quarter, the $0.62 as reported result – which excludes $0.15 related to tax legislation, employment expenses, and impairment – was just ahead of the $0.61 number on an apples-to-apples basis from the prior year.
In other words, without the benefit from the newly passed tax legislation and the implementation of certain accounting changes, WSM’s quarter would have been much closer than initially thought.
All told, revenues were impressive in the period as WSM saw 6.1% growth to $1.274 bln on gross margins of 36.5%. The company’s non-GAAP operating margins also beat market expectations at 6.8%. Also, WSM saw some decent growth from its online offerings as non-GAAP e-commerce net revenues were $686 mln, up 8.8%.
Merchandise inventories accelerated a bit on a quarter/quarter basis as at the end of the second quarter, total inventories increased 2.5% to $1.100 bln compared to just a 1.5% increase last period.
Further, comparable brand revenues in the second quarter outperformed the Street view, up 4.6% compared to an increase of 2.8% in the year ago period. Strength came out of Pottery Barn Kids and Teen which saw comparable sales increase 5.7% compared to last year’s 2.7% decline. The company’s West Elm business saw some weakness as comparable sales decelerated to 9.5% from 10.1% in the year ago period. At the company’s flagship Pottery Barn comparable sales saw a 2.0% increase, up 80 basis points from the 1.2% growth from a year ago. Lastly, the Williams Sonoma business saw a 30 basis point decline in comparable sales to 1.6%.
In terms of guidance, WSM now sees fiscal year 2018 EPS of $4.26-4.36, up from the prior $4.15-4.25 on revenues between $5.565-5.665 bln, up from the previous range of $5.495-5.655 bln. Further, WSM now sees FY18 comparable brand revenue growth raised at the low end to 3.0-5.0%, from the previous 2.0-5.0%.
WSM also gave guidance for the third quarter of EPS between $0.90-0.95 on revenues of $1.36-1.38 bln. WSM also guided for comparable brand revenue growth of 3.0-5.0%.
In sum, WSM’s results impressed the Street, albeit with help from some accounting changes. Revenues, sales, and margins came in ahead of expectations and WSM’s comparable sales also came in above market views. All told WSM tacks on a 12.4% higher Thursday after finishing 3.9% higher on Wednesday into the print.
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