Williams-Sonoma Announces Operating Results for 2nd Quarter

August 22, 2024  by Karen Parrish in Business Strategy, Industry   

“Today we are reporting strong results for the second quarter of 2024, which were driven by our Q2 improved top-line trend, market-share gains, and continued delivery on our commitment to profitability. In Q2, our comp came in at -3.3%, and we exceeded profitability estimates with an operating margin of 16.2% and earnings per share of $1.74, reflecting the 2-for-1 stock split we completed in July,” said Laura Alber, president and CEO.

Alber concluded, “We are pleased with our operating results. Our revised outlook today reflects our prudent view of the top-line, and the confidence we have in our profitability profile. We now expect full year revenues to come in at a range of down 4.0% to down 1.5%, but we are raising our guidance on operating margin to be in the range of 17.4% to 17.8%. The reduction in our revenue outlook is offset by our raised operating margin guidance."

SECOND QUARTER 2024 HIGHLIGHTS

• Comparable brand revenue -3.3%.
• Gross margin of 46.2% +550bps to LY driven by (i) higher merchandise margins of +380bps, (ii) supply chain efficiencies of +180bps, partially offset by (iii) occupancy deleverage of -10bps. Occupancy costs of $197 million, -3.0% to LY.
• SG&A rate of 30.0% +390bps to LY driven by higher performance-based incentive compensation and advertising spend. SG&A of $536 million, +10.4% to LY.
• Operating income of $290 million with an operating margin of 16.2%. +160bps to LY.
• Diluted EPS of $1.74. +11.5% to LY.
• Merchandise inventories -4.1% to the second quarter LY to $1.2 billion.
• Maintained strong liquidity position of $1.3 billion in cash and operating cash flow of $246 million, enabling the company to deliver returns to stockholders of $203 million through $130 million in stock repurchases and $73 million in dividends.
• On July 9, 2024, the Company effected a 2-for-1 stock split of its common stock through a stock dividend. All historical share and per share amounts in this release have been retroactively adjusted to reflect the stock split.

FIRST QUARTER 2024 OUT-OF-PERIOD ADJUSTMENT

Subsequent to the filing of our Form 10-K, in April 2024, the Company determined that it over-recognized freight expense in fiscal years 2021, 2022 and 2023 for a cumulative amount of $49 million. The Company evaluated the error, both qualitatively and quantitatively, and determined that no prior interim or annual periods were materially misstated. The Company then evaluated whether the cumulative amount of the over-accrual was material to its projected fiscal 2024 results, and determined the cumulative amount was not material. Therefore, the Condensed Consolidated Financial Statements for the twenty-six weeks ended July 28, 2024, include an out-of-period adjustment of $49 million, recorded in the first quarter of fiscal 2024, to reduce cost of goods sold and accounts payable, which corrected the cumulative error on the balance sheet as of January 28, 2024.

OUTLOOK

• We are revising our fiscal 2024 guidance to reflect lower net revenue trends and higher operating margin expectations. The net effect of these changes holds earnings materially in line with our prior implied EPS guidance.
• In fiscal 2024, we now expect annual net revenue growth in the range of -4.0% to -1.5% with comps in the range of -5.5% to -3.0% in fiscal 2024.
• We are raising our guidance on our operating margin for fiscal 2024. We now expect an operating margin between 18.0% to 18.4%, including the impact of the first quarter out-of-period adjustment of 60bps. Without this adjustment, we expect an operating margin between 17.4% to 17.8% in fiscal 2024.
• For fiscal 2024, we expect annual interest income to be approximately $45 million and our annual effective tax rate to be approximately 25.5%.
• Fiscal 2024 is a 53-week year. Our financial statements will be prepared on a 53-week basis in fiscal 2024 and a 52-week basis in fiscal 2023. However, we will report comps on a 53-week versus 53-week comparable basis. All other year-over-year comparisons will be 53-weeks in fiscal 2024 versus 52-weeks in fiscal 2023. We expect the additional week in fiscal 2024 to contribute 150bps to net revenue growth and 10bps to operating margin, both of which are reflected in our guidance.
• Over the long-term, we continue to expect mid-to-high single-digit annual net revenue growth with an operating margin in the mid-to-high teens.

CONFERENCE CALL AND WEBCAST INFORMATION

A replay of the webcast will be available at http://ir.williams-sonomainc.com/events .