Williams-Sonoma Announces Results & Reiterates Outlook with Tariff Insight

May 22, 2025  by Karen Parrish in Business Strategy, Industry   

“We are proud to deliver strong results in the first quarter of 2025, driven by a positive top-line comp and continued strength in our profitability. In Q1, our comp came in above expectations at +3.4%. And, we exceeded profitability estimates with an operating margin of 16.8% and earnings per share of $1.85 with earnings growth of 8.8%. In the quarter, we saw an acceleration of the positive comp trend coming out of Q4, with all brands running positive comps,” said Laura Alber, President and Chief Executive Officer.

Alber concluded, “There is no doubt that existing macroeconomic and geopolitical uncertainties are a focal point for the market. But volatility is not new in our industry, and we are confident in our ability to adapt and navigate whatever lies ahead. Therefore, we are optimistic about 2025 as we continue our focus on product innovation and customer service.”

FIRST QUARTER 2025 HIGHLIGHTS

— Comparable brand revenue +3.4%.

— Gross margin of 44.3% -360bps to LY including a prior year benefit of +300bps from the out-of-period freight adjustment in Q1 FY24. Without this prior year adjustment, gross margin -60bps to LY driven by (i) lower merchandise margins of -220bps, partially offset by (ii) supply chain efficiencies of +120bps, and (iii) occupancy leverage of +40bps. Occupancy costs of $198 million, +0.8% to LY.

— SG&A rate of 27.5% -130bps to LY driven by (i) lower advertising expense and (ii) employment leverage from the strength of our top-line and lower performance-based incentive compensation. SG&A of $475 million, -0.6% to LY.

— Operating income of $291 million with an operating margin of 16.8% -230bps to LY, including a prior year benefit of +300bps from the out-of-period freight adjustment in Q1 FY24. Without this prior year adjustment, operating margin +70bps to LY.

— Diluted EPS of $1.85 -7.0% to LY, including a prior year benefit of $0.29 per share from the out-of-period freight adjustment in Q1 FY24. Without this prior year adjustment, +8.8% to LY.

— Merchandise inventories +10.3% to the first quarter LY to $1.3 billion, including a strategic pull forward of receipts to reduce the potential impact of higher tariffs in FY25.

— Maintained strong liquidity position of $1.0 billion in cash and $119 million in operating cash flow enabling the company to deliver returns to stockholders of $165 million through $90 million in stock repurchases and $75 million in dividends. Stock repurchase authorization of $1.1 billion remaining under our stock repurchase programs.

FIRST QUARTER 2024 OUT-OF-PERIOD FREIGHT ADJUSTMENT

Subsequent to the filing of our fiscal 2023 Form 10-K, in April 2024, we determined that we over-recognized freight expense in fiscal years 2021, 2022 and 2023 for a cumulative amount of $49 million. We evaluated the error, both qualitatively and quantitatively, and determined that no prior interim or annual periods were materially misstated. We then evaluated whether the cumulative amount of the over-accrual was material to our projected fiscal 2024 results, and determined the cumulative amount was not material. Therefore, the Condensed Consolidated Financial Statements for the thirteen weeks ended April 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.

SECOND QUARTER 2024 COMMON STOCK SPLIT

On July 9, 2024, we effected a 2-for-1 stock split of our 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.

OUTLOOK

— We are reiterating our fiscal 2025 and long-term guidance.

— We are reiterating our guidance even with absorbing incremental costs from the existing tariff environment. These costs include the additional tariffs on China of 30% and the global reciprocal tariff of 10%, along with the tariffs we spoke about in March, including the tariff on Mexico and Canada of 25% and the tariff on steel and aluminum of 25%. It does not assume any other tariffs. If there are material changes in future tariffs, we will revisit our guidance.

— Fiscal 2025 is a 52-week year. Our financial statements will be prepared on a 52-week basis in fiscal 2025 versus 53-week basis in fiscal 2024. However, we will report comps on a 52-week versus 52-week comparable basis. All other year-over-year comparisons will be 52-weeks in fiscal 2025 versus 53-weeks in fiscal 2024.

— In fiscal 2025, we expect annual net revenues in the range of -1.5% to +1.5% due to the impact from the 53rd week in fiscal 2024, with comps in the range of flat to +3.0%; and an operating margin between 17.4% to 17.8%, inclusive of the impact from the 53rd week in fiscal 2024 of 20bps.

— 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

Williams-Sonoma, Inc. will host a live conference call and webcast. A replay of the webcast will be available at http://ir.williams-sonomainc.com/events.