Williams-Sonoma Inc. reported another volatile ride in the third quarter of fiscal 2023, ending Oct 29, 2023. It’s been a rollercoaster, with earnings trumping the Zacks Consensus Estimate, only for revenues to take a nosedive. The struggle continues, with both metrics tumbling down year over year. Imagine a prize-winning stallion saddled with a heavy load, it’s a sad sight. No joy here!

The latest figures reflect low contributions from the company’s reportable brands, with ongoing weakness in consumer discretionary spending, especially on furniture, hitting the company hard. Let’s not ignore the elevated levels of promotional activity and the current macroeconomic uncertainties adding insult to injury. But hey, it’s not all doom and gloom – Williams-Sonoma’s solid operating model partially offset the headwinds through its full-price selling, supply-chain efficiencies, and top-tier customer service. A small glimmer of hope in a dark, stormy night.

Following the earnings release, shares of this multi-channel specialty retailer of premium quality home products gained 6.2% during trading hours on Nov 16. A little respite in the storm, a small ray of light through the thick, angry clouds.

Earnings, Revenue, and Comps Discussion

Non-GAAP earnings per share (EPS) of $3.66 soared past the Zacks Consensus Estimate of $3.34 by 9.6%. However, the metric declined 1.6% from $3.72 reported a year ago. Rough waters continue indeed.

Net revenues of $1.85 billion missed the consensus mark of $1.95 billion and decreased 15.5% year over year. The reality is stark, a bitter pill to swallow.

Williams-Sonoma, Inc. Price, Consensus and EPS Surprise

Williams-Sonoma, Inc. price-consensus-eps-surprise-chart | Williams-Sonoma, Inc. Quote Fight

In the fiscal third quarter, comps fell 14.6% against 8.1% growth in the year-ago period. Our model predicted comps to decline 9.3% in the quarter. It’s a bitter pill to swallow.

Operating Highlights

The gross margin was 44.4%, up 290 basis points (bps) from the year-ago period. The increase was due to lower shipping and freight costs, along with a 1% year-over-year decline in occupancy costs. A small silver lining in a rather grim report.

Non-GAAP selling, general and administrative expenses were 27.4% of net revenues (below our projection of 25.3%), reflecting an increase of 140 bps year over year. Furthermore, the non-GAAP operating margin expanded 150 bps from the year-ago period to 17% for the quarter. Despite adversities, there’s been a little growth.

Financials

As of Oct 29, 2023, Williams-Sonoma reported cash and cash equivalents of $698.8 million compared with $367.3 million at the fiscal 2022-end. Net cash from operating activities totaled $1.01 billion in the first nine months of fiscal 2023 compared with $588.5 million reported in the comparable period a year ago. A little extra cash never hurt anyone, did it?

Fiscal 2023 Guidance Revised

Williams-Sonoma anticipates fiscal 2023 net revenues to decline between 10% and 12% compared with the prior expected range of 5%-10%. The company now expects its operating margin to be 16-16.5%, up from 15-16% expected earlier. It’s a tale of lowered expectations and the struggle to stay afloat. Will they weather this storm?

For the long term, the company still projects mid-to-high-single-digit annual net revenue growth and an operating margin above 15%. Like a sailor navigating treacherous seas, they’re holding onto hope for a brighter future.

Zacks Rank

Williams-Sonoma currently carries a Zacks Rank #3 (Hold). It’s treading water, trying to stay afloat, with few prospects of immediate rescue.

Recent Retail-Wholesale Releases

Several others in the same boat are Restaurant Brands International, Inc., The Wendy’s Company, and Shake Shack Inc., all struggling to find their way out of the tumultuous sea of financial woes. Each battling their own tempests, seeking sanctuary from the unrelenting waves of financial distress.

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