Williams-Sonoma (WSM -0.84%), a renowned home-furnishings retailer, reported mixed results for its fiscal second quarter on Aug. 22. The highlight figure from the report was a stronger-than-expected operating margin of 16.2%, a 1.6 percentage point increase from the prior-year period. However, comparable brand revenue fell by 3.3%, and actual revenue slid to $1.79 billion. Despite this, diluted earnings per share (EPS) grew by 11.5% to $1.74.
| Metric | Q2 2024 | Q2 2023 | Change YoY |
|---|---|---|---|
| Net revenue | $1.79 billion | $1.86 billion | (4.0%) |
| Gross margin | 46.2% | 40.7% | 5.5 percentage points |
| Operating income | $290 million | $272 million | 6.6% |
| Diluted EPS | $1.74 | $1.56 | 11.5% |
Understanding Williams-Sonoma
Williams-Sonoma is a leading home-furnishings retailer that operates several chains, including Pottery Barn, West Elm, and its namesake marque. The company's nine brands span various segments of the home furnishings market. Key factors in its success have included a strong digital-first approach and effective omnichannel strategy.
Recently, the company has focused on enhancing supply chain efficiency and sustainability. This focus helps in meeting rising consumer demand for ethical practices and reducing operational costs. It also aligns with its long-term profitability goals and stakeholder expectations.
Quarterly Highlights
In the quarter, which ended July 28, Williams-Sonoma achieved an operating margin of 16.2%, surpassing previous profitability estimates. This improvement was mainly driven by supply chain efficiencies and higher merchandise margins. The gross margin rose to 46.2%, representing a 5.5 percentage point increase year over year.
The company's revenue, however, dipped 4% to $1.79 billion. Pottery Barn saw a 7.1% drop in revenue to $726 million, while West Elm's revenue fell by 4.8% to $459 million. Notably, Pottery Barn Kids and Pottery Barn Teen combined to report 1.5% sales growth to $259 million.
Selling, general & administrative expenses consumed 30% of total revenue for Q2, a 3.9% year-over-year increase, primarily due to higher performance-based incentives and increased advertising. Additionally, merchandise inventories were managed efficiently, decreasing by 4.1% year over year.
On the financial health front, Williams-Sonoma maintained a robust cash position with $1.3 billion in cash and operating cash flow of $246 million. This allowed for substantial shareholder returns, including $130 million in stock repurchases and $73 million in dividends distributed during Q2.
Management also highlighted its commitment to environmental, social, and governance (ESG) principles, emphasizing sustainable supply chain practices and ethical business operations. The company remains a leader in ESG, recognized in Barron’s 100 Most Sustainable U.S. Companies for 2024.
Looking Ahead
Williams-Sonoma cut its fiscal 2024 revenue guidance -- it now expects revenues will decline by 1.5% to 4%. However, management raised its operating margin guidance range to 18% to 18.4% for the full year, signaling confidence in operational efficiencies and cost management.
